How does impairing goodwill affect the income statement?

Question

i am kinda shaky about this.

i know that when companies impair goodwill, they do not put it on the bs, but they put on the is. why do they do that? i heard people saying that it is an expense, but that's kinda vague answer for me so, i am looking for more thrill ones.

Answer 1

Well, if you can grasp the concept of depreciation for fixed assets, it's the same for impairment losses for goodwill. It's an expense, just like depreciation is an expense. Goodwill can be impaired for a variety of reasons. If company A buys company B for $1m and B's net worth is only $700k, that means A has paid $300k for goodwill. That might be because B has a good name in the trade and has lots of regular customers in its customer base. But if something bad happened, say B sells some food which poisoned several customers, people will avoid it, and its goodwill will be worth much less than the $300k recorded in A's books. That means its goodwill is impaired and A needs to recognise an impairment loss. As far as I know, write-offs of goodwill is not a tax deductible expense.

Answer 2

it's a goodwill impairment charge on the income statement, which lowers net income.   It is an expense.   it's a one-time (usually) impairment expense.  it's typically included under Other Income, or even sometimes in extraordinary charges (i think, maybe)

personally, i don't see why snr managemetn gets so in a tizzy over this.  it's a noncash expense.  BUT it does show that management overpaid for an asset if it was subsequently written down.