Goodwill sits on the balance sheet until a reporting unit’s fair value falls below its carrying value — at that point, a write-down is required, and it’s a one-way street.
How it works
Comparing a reporting unit’s carrying value (including goodwill) against its current fair value shows any shortfall — that shortfall is the goodwill impairment loss recognized immediately.
What this does not include
This does not include the impairment loss being capped at the goodwill balance itself (goodwill impairment can’t exceed the goodwill actually recorded) or the optional qualitative assessment (“Step 0”) companies can perform first to potentially skip the quantitative test entirely.
How to use this calculator
- Enter the reporting unit’s carrying value and fair value.
A worked example
A reporting unit with $5,000,000 carrying value and $4,200,000 fair value: impairment loss = 5,000,000 − 4,200,000 = $800,000.
What the variables mean
| Variable | Meaning |
|---|---|
| Carrying value | The goodwill’s value currently recorded on the balance sheet |
| Fair value | Current estimated fair value of the reporting unit |
Edge cases worth knowing
Impairment only occurs when fair value drops below carrying value — if fair value stays equal to or above carrying value, there’s no impairment to record, and the loss is capped at zero rather than going negative.
A negative carrying value has no accounting meaning, so the calculator declines to show a result for that input.
Frequently asked questions
Can goodwill ever be written back up after an impairment?
No — goodwill impairment is permanent; even if the reporting unit’s fair value later recovers, the previously impaired goodwill is never restored on the books.
How often must companies test goodwill for impairment?
At least annually, plus whenever a “triggering event” (a significant adverse change in business conditions, for example) suggests fair value may have dropped below carrying value between annual tests.
Why did the test get simplified in 2017?
The prior two-step process (a hypothetical purchase price allocation exercise) was seen as unnecessarily complex; the current one-step test directly compares fair value to carrying value instead.
