When should a consolidated entity recognize a goodwill impairment loss? A. Annually on a systematic and rational basis. B. If a reporting unit's fair value falls below its original acquisition price. C. If both the fair value of a reporting unit and its associated implied goodwill fall below their respective carrying amounts. D. Whenever the entity's fair value declines significantly.

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Business

Fiona Kelly

17 June, 15:33

When should a consolidated entity recognize a goodwill impairment loss? A. Annually on a systematic and rational basis. B. If a reporting unit's fair value falls below its original acquisition price. C. If both the fair value of a reporting unit and its associated implied goodwill fall below their respective carrying amounts. D. Whenever the entity's fair value declines significantly.

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Viviana Steele · Answer 1

Answer: Option C

Explanation: In simple words impairment loss means there is reduction in the goodwill account. It is calculated as follows.

1. First the fair value of goodwill is compared with its carrying value.

2. If the fair value comes to be less than carrying value then impairment loss is calculated by subtracting fair value from carrying value.

Thus, impairment loss will be calculated only if the fair value of the asset is less than its carrying value.