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You are the Corporate Controller for your company and during the quarter completed the annual Goodwill Impairment test. The analysis determined that an impairment charge of $100 million dollars was...

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You are the Corporate Controller for your company and during the quarter completed the annual Goodwill Impairment test. The analysis determined that an impairment charge of $100 million dollars was necessary given a lower estimated fair market value of an acquired business that fell from $500 million to $400 million. The impairment charge was reflected as a $100 million expense on the quarterly income statement. This was not forecasted expense and caused EPS in the quarter to be reduced by $0.35, or half of the analysts' consensus EPS for the quarter. The lower fair market value was the result of a lower 5-year revenue forecast reflecting a more conservative view of product pricing than assumed in the acquisition business case. Pricing has been negatively affected by new, low-cost competitors that entered your market.
Answered Same Day Dec 27, 2021

Solution

Robert answered on Dec 27 2021
108 Votes
As in the cu
ent quarter the company goes for an impairment test of the goodwill of the
company. During the test it is being discovered that the business it is acquired for $ 500 million
was now reduced to $ 400 million because of the fair market value is being reduced. According
to the US GAAP ASC 350 deals with the Impairment of goodwill and other assets, it says that
when the fair market value of the assets is less than the ca
ying amount of the assets than
impairment loss has to be recognized. The company has done a co
ect accounting treatment of
impairment and because of this the EPS of the quarter has been reduced as it affects on the
profitability of the company. This should be communicated to the different stakeholders as they
are the real owners of the company:
Investors: It is to be communicated to the investors either through audit...
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