Dealing with Goodwill Impairment

Business Advisors|Business Valuation

By Marisa Gentile

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Impairment charges generally relate to the deterioration of the general economic environment, decline in a company’s share price, decline in market capitalization and adverse financial market conditions. The current economic environment has had a significant overall impact on reporting entities. This is illustrated by the string of publicly-traded companies reporting losses due to goodwill impairment charges. Examples include the following:

  • Macy’s - between $4.5 billion and $5.5 billion
  • Office Depot - $1.27 billion
  • Zale’s - $5 million
  • Expedia - $3 billion
  • Sprint Nextel - $1 billion

According to FAS 142, goodwill and intangible assets that have indefinite useful lives should not be amortized but rather tested annually for impairment. Impairment testing is a two-step process that begins with an estimation of the fair value of a reporting unit. Step one of the process screens for potential impairment. If step one is failed then step-two is required to measure the amount of impairment. Impairment generally is recognized when the carrying value of the reporting unit’s net assets exceeds the estimated fair value of the reporting unit.

With the present tumultuous nature of the economy, it is important for companies to be aware of the potential for goodwill impairment. Please contact your Schneider Downs representative for assistance with this matter.

Schneider Downs provides accounting, tax and business advisory services through innovative thought leaders who deliver the expertise to meet the individual needs of each client. Our offices are located in Pittsburgh, PA and Columbus,OH.

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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