Goodwill impairment testing involves comparing:

Goodwill impairment testing involves comparing:

• A. Carrying amount of goodwill to its recoverable amount; impairment reduces goodwill on the books.
• B. The higher of fair value less costs of disposal and value in use.
• C. Replacement cost of the asset.
• D. Net cash flows of the business unit to the original purchase price.

Answer: (A)

Goodwill impairment testing hinges on comparing the asset’s carrying amount with the amount that could be recovered. In IFRS, the recoverable amount is the higher of fair value less costs of disposal and value in use. You compare the carrying amount of goodwill to this recoverable amount; if the carrying amount is higher, an impairment loss is recognized to reduce goodwill to the recoverable amount. The impairment reflects a loss in value that cannot be reversed later. Replacement cost or simply relying on net cash flows versus the original purchase price aren’t used in this test.

Goodwill impairment testing hinges on comparing the asset’s carrying amount with the amount that could be recovered. In IFRS, the recoverable amount is the higher of fair value less costs of disposal and value in use. You compare the carrying amount of goodwill to this recoverable amount; if the carrying amount is higher, an impairment loss is recognized to reduce goodwill to the recoverable amount. The impairment reflects a loss in value that cannot be reversed later. Replacement cost or simply relying on net cash flows versus the original purchase price aren’t used in this test.