Testing Tangible and Intangible Assets for Impairment


By Christy Samek

Considering the economic environment, many companies may need to review tangible and intangible assets for impairment. If your company needs to complete impairment testing this year, here are a few items to consider. Accounting guidance states that goodwill and other indefinite-lived intangible assets (i.e., trade name) must be tested annually for impairment. Finite-lived assets (i.e., fixed assets, customer lists, etc.) are tested only when there is a triggering event, such as a plant closure (fixed assets) or the loss of a significant customer (customer lists).

The test for indefinite-lived intangible assets, other than goodwill, is a one-step test that compares the carrying amount of the asset to fair value. The test for finite-lived assets, such as plant machinery and equipment, is a two-step test that determines whether or not the carrying value of the asset will be recoverable. First, determine the cash flow that will be generated from the use of the asset or asset group. Remember to consider the residual cash value that the asset could be sold for at the end of its useful life, if applicable. If the total undiscounted cash flow is greater than the carrying value, no impairment is indicated. If the undiscounted cash flow is less than the carrying value, then you must proceed to step 2 and determine the actual fair value of the asset.

The test for goodwill impairment is also a two-step process; however, the test is different than the test for finite-lived assets. Step 1 compares the book value of equity to the fair value of equity. If the book value of equity is greater than its fair value, then you must proceed to step 2 to determine impairment. Step 2 determines the value of goodwill in the same manner as determining goodwill in a business combination where the fair value of the company as of the date of the impairment testing is allocated to its assets. This process requires determining the fair value of all other assets for the purpose of determining the residual goodwill value.

If you need help with testing for impairment and the related valuations that go along with testing for impairment, please contact Christy Samek at 412-697-5415 or csamek@schneiderdowns.com.




Schneider Downs provides accountingtax, wealth management, technology 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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