Asked by Keondra Rouse on Jun 11, 2024
Verified
Which of the following statements does not accurately describe the current accounting standards for goodwill?
A) If the fair value of the reporting unit is greater than its book value there is not a goodwill impairment.
B) Goodwill should not be amortized.
C) If the fair value of the reporting unit is less than its book value there will always be a goodwill impairment.
D) Goodwill should be tested for impairment on at least an annual basis and in certain conditions between annual dates.
Goodwill Impairment
The financial recognition that the value of the goodwill acquired in a business combination has decreased, indicating that the carrying value of the goodwill is no longer supported by the future economic benefits it was expected to generate.
Reporting Unit
A component of an entity for which discrete financial information is available and is reviewed regularly by the operating segment's management.
Fair Value
The sum fetched from the sale of an asset or spent on the transition of a liability in a smooth transaction involving market participants at the time of assessment.
- Explain the consequences of choosing the fair value option when accounting for investments through the equity method, as well as the standards for goodwill impairment.
Verified Answer
EM
Emily MuenstermanJun 17, 2024
Final Answer :
C
Explanation :
This statement is not accurate as there could be situations where the fair value of the reporting unit is less than its book value but there may not be a goodwill impairment if the fair value of the individual assets and liabilities within the unit are greater than their carrying values. Goodwill impairment is determined by comparing the fair value of the reporting unit with its carrying amount, not just its book value.
Learning Objectives
- Explain the consequences of choosing the fair value option when accounting for investments through the equity method, as well as the standards for goodwill impairment.