Goodwill and Impairment Under US GAAP: Worked Examples
By SimplyCPA · 11 October 2026
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- Goodwill: Consideration transferred + fair value of any non-controlling interest + fair value of any previously held interest − fair value of identifiable net assets.
- Not amortised (public companies): Goodwill is tested for impairment at least annually and when a triggering event occurs.
- One-step test: Impairment = carrying amount of the reporting unit − its fair value, capped at the goodwill allocated to it.
- Optional qualitative screen: If it's not more likely than not that fair value is below carrying amount, no quantitative test is needed.
- Private companies: May elect to amortise goodwill over up to 10 years and test only when a triggering event occurs. Impairment losses are never reversed.
Measuring goodwill
Under the acquisition method in ASC 805, goodwill is the excess of:
- the consideration transferred, plus
- the fair value of any non-controlling interest (NCI) in the acquiree, plus
- the acquisition-date fair value of any equity interest the acquirer already held,
over the fair value of the identifiable assets acquired and liabilities assumed. If the net assets exceed the total, the result is a bargain purchase gain, recognised in earnings after the acquirer re-checks its measurements.
Example: Parent pays $800,000 for 80% of Sub. The fair value of the 20% NCI is $200,000. Sub's identifiable net assets have a fair value of $900,000.
Goodwill = $800,000 + $200,000 − $900,000 = $100,000.
Testing goodwill for impairment (ASC 350)
- Allocate goodwill to reporting units — an operating segment or one level below.
- Optional qualitative assessment ("step zero"): consider macroeconomic conditions, industry and market factors, cost pressures, overall financial performance and entity-specific events. If it's not more likely than not that the unit's fair value is less than its carrying amount, stop.
- Quantitative test: compare the reporting unit's fair value with its carrying amount, including goodwill. If carrying amount exceeds fair value, recognise an impairment loss equal to the excess — but not more than the goodwill allocated to that unit.
This one-step test was introduced by ASU 2017-04, which removed the old "Step 2" (calculating the implied fair value of goodwill).
| Scenario | Carrying amount (incl. $300,000 goodwill) | Fair value of unit | Impairment loss |
|---|---|---|---|
| A | $1,200,000 | $1,300,000 | None |
| B | $1,200,000 | $1,000,000 | $200,000 |
| C | $1,200,000 | $800,000 | $300,000 (capped at goodwill) |
Order of testing
If other assets in the unit are also being tested, test them first: indefinite-lived intangibles, then long-lived assets held and used under ASC 360, and goodwill last. Otherwise goodwill would absorb losses that belong to other assets.
Other intangible assets
- Finite-lived intangibles (customer lists, patents) are amortised over their useful lives and tested under ASC 360's recoverability model when there's a triggering event.
- Indefinite-lived intangibles (some trademarks, licences) are not amortised; they're tested at least annually by comparing fair value with carrying amount.
Private company alternatives
Private companies may elect to amortise goodwill on a straight-line basis over 10 years (or less if more appropriate) and to test for impairment only when a triggering event occurs, at the entity or reporting unit level. They may also elect to evaluate triggering events only at the reporting date.
Exam trap: A goodwill impairment loss can never be reversed under US GAAP — not even if the reporting unit's fair value recovers in the next quarter.
Continue with FAR intangible assets and goodwill and business combinations under ASC 805.