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Valuations for Goodwill Impairment

Post-Transaction Valuation of Intangible Assets (Impairment Studies)
ASC 360, (formerly SFAS No. 144), Accounting for the Impairment or Disposal of Long-Lived Assets, applies to recognized long-lived assets (tangible or intangible) of an entity to be held and used or to be disposed of. ASC 360 does not apply to goodwill and other indefinite-lived intangibles.  Under ASC 360, an impairment loss will be recognized only if the carrying amount of a long-lived asset (asset group) is (i) not recoverable and (ii) exceeds its fair value. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group).  A long-lived asset (asset group) is tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.  Complexities of a ASC 360 analysis include determination of the appropriate asset or asset group base and identification of a cash flow stream specific to the asset or asset group.

ASC 350, (formerly SFAS No. 142), Goodwill and Other Intangible Assets, addresses financial accounting and reporting for acquired goodwill and other intangible assets.  It addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. This Statement also addresses how goodwill and other intangible assets acquired in a business combination should be accounted for after they have been initially recognized in the financial statements.

According to ASC 350, an identifiable intangible asset (not goodwill) that is not subject to amortization is to be tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test for goodwill or an indefinite lived identifiable intangible asset consists of a comparison of the measurement date fair value of the intangible asset with its carrying amount. If the carrying amount exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.  Aside from goodwill, common examples of assets tested pursuant to this method include acquired trademarks and trade names which can be assigned indefinite lives as of the acquisition date.

The valuation professionals at Hempstead & Co. have extensive experience in dealing with the complex valuation issues related to goodwill impairment. We welcome the opportunity to be of service.