Question

can someone explain the write-down of goodwill for impairment? i know it affects the balance sheet and imcome statement, bit i do mot completely understand what exactly it is

Answer 1

Goodwill impairment is a charge that occurred and the companies record when the goodwill's carrying value on financial statements exceeds its fair value. In accounting goodwill recorded by the companies after acquiring of all assets and liabilities and pays price more than the actual value. A large amount of impairment means that the company does not have proper investment decisions about physical assets and it will lead to paying more for an asset than it should. In some cases, the impairment of goodwill occurs due to legal issues, changes in the nature of the business, political problems, etc. When that happens, its value needs to be written down.

JOURNAL ENTRY FOR GOODWILL IMPAIRMENT;

Goodwill impairment expenses a/c dr

To Goodwill a/c

Goodwill impairment is recognized as a loss in the income statement and as a reduction in the goodwill account. The amount recorded as the loss is the difference between the current value of the asset and the book value or cost of the asset. The loss will reduce the income of the income statement. If the fair value of the goodwill is less than the value listed in the balance sheet, the difference is written down as an 'impairment charge' on the company's income statement.

Impairment loss works likes accumulated depreciation. The amount recognized as a loss of impairment on goodwill credit to the asset. The impairment loss of goodwill will reduce the total asset of the balance sheet. The impairment loss reduces the value of the impaired goodwill on the balancesheet.