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Goodwill Impairment Analysis

Goodwill Impairment Tool

Goodwill Impairment Tool FAQ

Hedge Accounting Tool

Fair Value Model

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Sample Selection Tool

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Model Comparison


Overview and Goodwill Impairment Tool Inputs

ASC 350 (formerly FAS142) requires that companies evaluate goodwill valuation on an annual basis or more frequently if certain triggering events have occured. Evaluating goodwill involves comparing the fair-value to the recorded value of goodwill. If recorded value exceeds the associated fair-value, then impairment has occured and the company must write down a portion or all of their goodwill. Our Tool helps companies value their goodwill using the discounted cash flow method and determine the amount of impairment, if any.

Using this method, cash flows are estimated for ten years and then a 'residual value' is computed for the value of the reporting unit after ten years. These amounts are then adjusted using a discount rate to determine their value today.

Tool Inputs

Our Tool allows for up to five different cash flow scenarios. The user specifies the probability of each outcome. You may adjust a number of different inputs to model each scenario. The following inputs are used to gather the information for each goodwill asset (a new workbook is created for each goodwill asset on the books).

The following inputs are collected for all scenarios as a basis for computation (see Figure 1):

Company Name, Reporting Unit and Project Manager The Tool provides input for the company name and the associated reporting unit/subsidiary if needed along with the responsible party.
Valuation Date and Next valuation date The Tool records the date the current valuation is performed for use in reporting and a next valuation date is provided to remind you to perform the next valuation.
Carrying Value of Assets (including the goodwill) This input gathers the unit's asset balance at the valuation date that is used in the calculation.
Carrying Value of Liabilities The Liabilities carried for the Unit, if any.
Carrying Value of Goodwill The goodwill value recorded for the unit. This value is used to determine the potential impairment.
Expected Operating Cashflows The expected cashflows of the unit used as the basis for the growth rate of cashflows for the scenarios to compute the net present value.
Expected Capital Expenditure The CapEx spending on the unit used to adjust the cashflows and as the basis for CapEx growth in the scenarios.
Default Tax Rate The Tax rate to be used as the default tax rate for all scenarios. We provide an option to override the individual tax rate for each year in each scenario to give you more flexibility.
Current Debt Balance The Debt balance for the unit used to adjust the Net value of the asset.
Discount Rate The "Discount" interest rate used to approximate interest and as the interest rate input to the NPV formula.
Estimated Inflation Rate The Inflation rate used to adjust the Discount Rate in the Discounted cash flow method.

Figure 1. Input screen for all scenarios to provide basis for computation.


The FAS142 Tool provides spaces for up to five scenarios each with up to ten years of future performance projections. With these scenarios, you can project potential future performance for the unit and to score the various outcomes using a probability input. The probability input informs the Tool as to how to weight the various scenarios in the final computation used to determine actual value and possible impairment. You do not need to use all scenarios (just leave the probability input as 0 to ignore unused scenarios). Calculations are shown for each scenario. See Figure 2. Help text is available for the key inputs with the buttons marked with .

The following inputs are collected for each scenario:

Subjective Rating and Detail inputs The Detail input gives you a narrative to describe this scenario. There is also a field to choose between five potential likelihoods: Very High, High, Moderate, Low and Remote. This drop-down list gives you an easy way to rate the scenario (however, this is informational only, the probability actually determines the rating).
Cashflow Growth Rate The rate the current Cashflow is expected to change (up or down) for the unit in this scenario. This input defines the upside potential for the unit. There are ten inputs for each year in the scenario.
CapEx Growth Rate The rate the current Capital Expenditure is expected to change (up or down) for the unit in this scenario. This input defines the cost potential for the unit. There are ten inputs for each year in the scenario.
Effective Tax Rate The Tax rate used to adjust the value of the Cashflow. This input defaults to the Default Tax rate defined above but can be overriden to permit more control (for example to adjust for tax benefits relating to capital expediture or other possible tax treatment). There are ten inputs for each year in the scenario.
Sustainable Cashflow Growth Rate Beyond Year 10 The Sustainable Growth input provides the means to define the expected future growth of this unit for the years after year 10 to value the long-term cashflow potential of the unit.
Probability Score This input indicates the weighting for this scenario in the final net value computation. This input can be 0 (ignore) to 100% (only use this scenario).

Figure 2
. Scenario Input screen for up to five scenarios to provide basis for computation; only three are shown for brevity.

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