Question

Simon Company determines that its goodwill is impaired. It finds that its implied goodwill is \(360,000 and its recorded goodwill is \)400,000. The fair value of its identifiable assets is $1,450,000. What is the amount of goodwill impaired?

Short answer

The amount of goodwill that has been damaged is $40,000.

Step-by-step solution

Impaired Goodwill

When the carrying value of goodwill on financial statements exceeds its fair value, corporations declare a goodwill impairment charge. Goodwill is documented in accounting after a corporation buys assets and liabilities for a price that is higher than its identified net worth.

Calculation

The amount of goodwill that is impaired is calculated as follows:

$$\begin{gathered} \mathbf{Impaired}\mathbf{}\mathbf{Goodwill}\mathbf{=}\mathbf{Recorded}\mathbf{}\mathbf{Goodwill}\mathbf{-}\mathbf{Implied}\mathbf{}\mathbf{Goodwill} \\ \mathbf{=}\mathbf{\$}\mathbf{400}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{\$}\mathbf{360}\mathbf{,}\mathbf{000} \\ \mathbf{=}\mathbf{\$}\mathbf{40}\mathbf{,}\mathbf{000} \end{gathered}$$