Chapter 1, Problem 1.1CC

To determine

Goodwill impairment:

Goodwill impairment refers to the expense which is recorded when the fair value of the goodwill is less than the carrying value of the goodwill. The impairment loss is recorded when the company finds that the goodwill recorded earlier has been impaired.

Recording of goodwill impairment:

• Impairment of goodwill is computed by using the book value and the fair value of the goodwill.

• The carrying value of the goodwill is compared with the book value of the goodwill. The auditor can compute the implied fair value of the goodwill, and it can be ensured whether the impairment is recorded on goodwill or not.

• The impairment is treated as a loss, and it is recorded as a loss in the income statement. The carrying value of the goodwill is reduced with the amount of impairment loss.

Impairment loss:

The loss which is incurred due to change in the carrying value of the asset or business is called as impairment loss.

Fair value of the asset:

Fair value of the asset is the amount at which two parties may enter into an agreement with open hand.

:

Whether the goodwill has been impaired or not.

To calculate the adjustment to goodwill and to do the required entry if it has been impaired.