Asset and Goodwill Impairment
When a company has intangible assets or goodwill on its balance sheet, it must annually review the value of those assets to determine whether they are “impaired” and, if so, determine the amount by which the value should be reduced.
ASC 350 and 360 (formerly FAS 142 and144) and IAS 36
The FASB has published standards governing testing and impairment of intangibles and goodwill. The rules require that a company annually conduct a two step test. 1. The company must compare the “fair value” of each reporting unit to its carrying value. 2. If the “fair value” is less than the carrying value, then the company must allocate the reporting unit’s “fair value” to its individual assets and liabilities, including goodwill. If the “fair value” of goodwill is equal to or greater than the carrying value, then there is no impairment. However, if the “fair value” of goodwill is less than the carrying value, then there is an impairment loss equal to the difference in values.
The rules about the impairment or disposal of long lived assets are similar. A company recognizes an impairment loss only if the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flows. The impairment loss is defined as the difference between the carrying amount and new fair value of the asset.
Teknos assists management teams by valuing intangible or long lived assets, determining which have finite lives and determining the length of those lives, and valuing goodwill. Because of our focus on technology companies, we understand the complexities of valuing specialized assets such as patents, licenses, tradenames, software code, drug compounds, mask-works, know-how, and in-process research and development.
For assistance with asset and goodwill impairment testing, please contact us: .(JavaScript must be enabled to view this email address)