Question

When is a goodwill impairment loss recognized? a. Annually on a systematic and rational basis. b. Never When both the fair value of a reporting unit and its associated implied goodwill fall below their respective carrying values. c. If the fair value of a reporting unit falls below its original acquisition price. d. Whenever the fair value of the entity declines significantly.

Answer 1

Answer:

The correct answer is letter "C": When both the fair value of a reporting unit and its associated implied goodwill fall below their respective carrying values.

Explanation:

Impairment Loss is the decrease in an asset's net carrying value that exceeds the future undisclosed cash flow it should generate. The net carrying value is an asset's acquisition cost minus depreciation. Impairment occurs when a company sells or abandons an asset that is no longer beneficial.

Thus, a goodwill impairment loss is recognized when the goodwill's net carrying value is below its fair value and the expected cash flow it was to generate.