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Goodwill Impairment with Tax-Deductible GoodwillSimultaneous Equation

What does this come to under the current IRS rules?

Goodwill impairment grossed up for the deferred tax effect under ASC 350-20-35-8B, capped at goodwill.

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Your figures
Example figuresIllustrative only. Type over them with your own.
Goodwill impairment loss
$167
Grossed up for the deferred tax effect
Preliminary impairment (carrying amount - fair value)
$100
Deferred tax effect of the loss
$67
Drawn to one scale
Goodwill impairment loss$167
Preliminary impairment (carrying amount - fair value)$100
Deferred tax effect of the loss$67
Carrying amount after impairment$900
All results
MeasureResult
Goodwill impairment loss$167
Preliminary impairment (carrying amount - fair value)$100
Deferred tax effect of the loss$67
Carrying amount after impairment$900
Capped at goodwillNo
How this was worked out
Work shownrecomputed as you type
Preliminary = carrying amount - fair value
Loss = preliminary / (1 - tax rate), capped at goodwill
Deferred tax effect = loss x tax rate

Illustrative arithmetic on the figures you enter. Check the result against your firm's methodology before relying on it.

The formulas

  • Preliminary = carrying amount - fair value
  • Loss = preliminary / (1 - tax rate), capped at goodwill
  • Deferred tax effect = loss x tax rate

How it works

ASU 2017-04 removed step 2: the impairment is the amount by which the carrying amount exceeds fair value, limited to goodwill. When goodwill is tax deductible, recognizing the loss raises the deferred tax asset and pushes the carrying amount back above fair value. ASC 350-20-35-8B solves this with the simultaneous equation from ASC 805-740-55-9 to 55-13.

The example is Example 2A in ASC 350-20-55-23A to 55-23C: carrying amount $1,000, fair value $900, 40 percent rate. The loss is $167 and the deferred tax asset rises by $67, leaving carrying amount equal to fair value.

Illustrative figures only. Check the result against your firm's methodology before relying on it.

Common questions

What if only part of the goodwill is deductible?

The gross-up applies to the tax-deductible portion. Model the deductible and non-deductible portions separately.

Can the loss exceed goodwill?

No. ASC 350-20-35-8B caps the total loss at goodwill allocated to the reporting unit.

Is a qualitative assessment still allowed first?

Yes. An entity may assess qualitative factors before the quantitative test.

Sources

Runs in your browser. The figures you type are not sent to CORAA or stored. Check the result against your firm's methodology before relying on it.

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