5. When a company assigns goodwill to a reporting unit acquired in a business co

Question

5. When a company assigns goodwill to a reporting unit acquired in a business combination, it must record an impairment loss if:

a. The carrying value of the reporting unit is less than the fair value of the reporting unit.

b. The fair value of the net identifiable assets held by a reporting unit decreases.

c. The fair value of the reporting unit is less than its carrying value and the carrying value of goodwill is more than the implied value of its goodwill.

d. The fair value of the reporting unit decreases.

Explanation / Answer

The correct answer is option (b). When a company assigns goodwill to a reporting unit acquired in a business combination, it must record an impairment loss if the fair value of the net identifiable assets held by a reporting unit decreases. The end of fiscal year decides the timing of annual impairment led by reporting unit acquired in a business combination.

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