Goodwill impairment.

In plain English

Goodwill impairment is the write-down recorded when the carrying value of a reporting unit including its goodwill exceeds its fair value, meaning an acquisition has not delivered what was expected. Goodwill arises when a buyer pays more than the fair value of the identifiable net assets it acquires, and that premium sits on the balance sheet. It is not amortized on a fixed schedule; it is tested for impairment at least annually and whenever events suggest a decline. The charge reduces reported earnings and equity but moves no cash, since the cash left at closing. A large impairment is management confirming in the ledger that the price paid was too high.

01Why it matters

An impairment is one of the few places a company has to publicly mark its own past decision as a mistake, and the size of the charge is the scoreboard on that deal.

02The math, step by step

Say a company pays 500,000,000 dollars for a business with 300,000,000 dollars of identifiable net assets, recording 200,000,000 dollars of goodwill. Three years later the unit's fair value falls to 350,000,000 dollars against a carrying value of 500,000,000 dollars. The company records a 150,000,000 dollar impairment charge.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT

04Receipts

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