Goodwill Impairment Loss

When circumstances indicate that the goodwill may have become impaired, the remaining goodwill will be estimated. If the resulting estimate is less than the book value of the goodwill, a “goodwill impairment loss” is recorded. What is Goodwill Impairment Loss? How is Goodwill Impairment Loss Handled? How to calculate Goodwill Impairment Loss? How to record Goodwill Impairment Loss? This post answers the question.

[1]. The parent could record the impairment loss on its books and credit the investment in subsidiary account.

[2]. The impairment loss could be recorded only on the consolidated worksheet. This would adjust consolidated net income and produce a correct balance sheet. The only complication affects consolidated worksheets in periods subsequent to the impairment.

Suppose Company P purchased an 80% interest in Company S in 20X7 and the price resulted in goodwill of $165,000. On a future balance sheet date, say December 31, 20X9, the following information would apply to Company S:

Sophisticated equity method investment balance on December 31, 20X9 = $800,000
Estimated fair value of Company S = $900,000
Estimated fair value of net identifiable assets = $850,000



Determining if goodwill has been impaired would be calculated as shown here:





Sophisticated equity method investment balance on December 31, 20X9 = $800,000
Estimated fair value of investment, 80% x $900,000 = $720,000

Because the investment amount exceeds the fair value, goodwill is impaired, and a loss must be calculated.

The impairment entry on Company P’s books would be as follows:

[Debit]. Goodwill Impairment Loss = $125,000
[Credit]. Investment in Company S = $125,000