Goodwill impairment occurs when the fair value of goodwill, which is an intangible asset recorded after a company acquires assets and pays a price in excess of their identifiable net value, drops below its book value. This is typically assessed annually or when there are triggering events. The impairment is calculated as the difference between the fair value and carrying value of the goodwill, and if it is identified, it must be recorded as a loss on the income statement. Goodwill impairment is a non-recurring expense and is subject to annual testing to ensure accurate reporting of its value. It is an indication that the company purchased an asset in the past, and that asset is now worth less than its value on the company’s balance sheet
. Goodwill impairment testing is an important aspect of accounting for business acquisitions, as it ensures that the value of goodwill is accurately reflected on the balance sheet. Companies are required to test for goodwill impairment annually or more frequently if certain indicators are present. The impairment test compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount exceeds the fair value, an impairment charge is recognized for the excess. This process helps to ensure that the goodwill reported on the balance sheet is not overstated and accurately reflects its true value
