Goodwill Impairment

Goodwill impairment is the reduction recorded when the carrying amount of goodwill is no longer supportable by the value of the reporting unit or cash-generating unit to which that goodwill is assigned.

In plain terms, the business paid an acquisition premium earlier, but later evidence shows part of that premium can no longer be justified.

Why impairment happens

Common triggers include:

• weaker-than-expected acquisition performance
• declining cash-flow expectations
• loss of customers, market share, or strategic fit
• adverse changes in industry conditions or discount-rate assumptions

Basic accounting idea

When impairment is identified, the company recognizes a loss and reduces the goodwill balance.

That means:

• assets go down on the balance sheet
• earnings go down in the period of the impairment charge

Goodwill vs goodwill impairment

• Goodwill is the original acquisition premium carried as an asset.
• Goodwill impairment is the later accounting charge when part of that premium is no longer recoverable.

Related terms

• Impairment Testing
• Impairment Loss
• Negative Goodwill