CFA Practice Question

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CFA Practice Question

If goodwill is deemed to be impaired, ______

I. it is charged against income in the current period.
II. the charge reduces current earnings.
III. assets are reduced.
Correct Answer: I, II and III

User Contributed Comments 7

User Comment
Htoon can somebody explain the relationship among these three?
Smurfy when the impairment of goodwill is charged against income, expenses for the current period rise, so current earnings will fall.. and when expenses rise, we have to pay for them with current assets (ideally cash) so current assets fall as well
madhi Smurfy,

When goodwill is impaired, Non-current assets are reduced not current assets.

The goodwill account on the balance sheet goes down by the same amount expensed in the income statement (i.e. the impairment charge).

The impairment charge is a non-cash expense, so cash has nothing to do with this.
pappoo You are right Madhi
moneyguy So III would be false if it stated "current assets".
gill15 Super Madhi...wasnt thinking that at all
ascruggs92 moneyguy, yes, that is correct. The only asset that will be reduced from an impairment of goodwill is the goodwill itself
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