Goodwill Impairment

A goodwill impairment occurs when a company A) pays more than book value for a set of assets (the difference is the goodwill), and B) must later adjust the book value of that goodwill. Goodwill (cf.) is the premium paid for a company above fair value. Goodwill does not amortise like tangible assets but companies may need to conduct goodwill impairment tests every year to ensure its accurate valuation. Impairments (following a fair-value test indicating the value has fallen below the carrying value on the balance sheet) must be registered as a loss and recognised as an expense in the annual income statement. The goodwill entry on the balance sheet must also be adjusted.