Goodwill damage occurs when a company decides to pay more than book value for the acquisition of an asset, and then the value of that asset dips. The difference between the amount that the company paid for the asset and the book value of the asset is known as goodwill. The suite has to adjust the book value of that goodwill down if it becomes impaired.
Accounting for Goodwill
A company accounts for its goodwill on its
Why Trail and Assess Goodwill for Impairment?
A large amount of goodwill impairment could mean that a company is not making unmarred investment decisions in physical assets or that it could be paying more for an asset than it should.
Goodwill can pretend to be a large part of a company’s value or net worth. If a company doesn’t test for goodwill impairment, it could overstate its value or net advantage.
Since goodwill is an intangible asset, treating it like a normal asset and amortizing it does not give a clear envision as to the value of the asset. It needs to be tested for impairment once a year.