Eagle Company

The following are the required steps to identify, recognize and measure the impairment of a long-lived asset (group) to be held and used:

Goodwill is considered impaired when the implied fair value of goodwill in a reporting unit of a company is less than its carrying amount, or book value, including any deferred income taxes. By qualitative factors, if the fair value is less than its book value (likelihood more than 50%), two step of the goodwill impairment test is necessary. According to ASC 350-20-35-2 and 3(A&B&D), if the company determines that it is not more likely than not that fair value is less than the book value, it does

vi) Goodwill- The beginning balance for Goodwill was determined by finding the difference between Total Assets and Total Liabilities at the beginning . Goodwill accounts for all the intangible assets that were transferred from the old company to the new company, including brand name, as well as a premium paid for the company. Goodwill was not amortized in this model.

Goodwill is not amortised. Instead, goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.For the purposes of impairment testing, goodwill is allocated to each of the Group 's cash-generating units (CGUs), or groups of CGUs, expected to benefit from the synergies of the business combination. CGUs (or groups of CGUs) to which goodwill has been allocated are tested for impairment annually, or more frequently if events or changes in circumstances indicate that goodwill might be impaired.If the recoverable amount of the CGU (or groups of CGUs) is less than the carrying amount of the CGU (or groups of CGUs), the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the CGU (or groups

* Test for recoverability — If indicators are present, perform a recoverability test by comparing the sum of the estimated undiscounted future cash flows attributable to the asset (group) in question to their carrying amounts (as a reminder, entities cannot record an impairment for a held and used asset unless the asset first fails this recoverability test).

Where explain the concept of Intangible asset, which represents assets that absence of physical substance. Moreover, Goodwill represents an asset from which is expected future economic benefits, emerge from the acquisition of other assets or business combination. Another important point would be the impartments testing as refers ASC 350-20-35-28 where indicates that Goodwill of reporting unit must be tested for impairment annually. The test can be accomplished at any time in the fiscal year. In the case of different reporting unit, the impairment test could be at different times. This citation in the memorandum was provided incorrect (ASC 305-20-35-1 and 28) this encoding does not exist in FASB.

Section 360-10-35-17 of the Code states that an impairment loss shall be recognized if the carrying value of a fixed asset is not recoverable and exceeds its fair value. The carrying value of the fixed asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and disposal of the asset. An impairment loss shall be measured by the amount by which the carrying value exceeds the fair value.

Based on ASC 320-10-35-34 I mentioned above, the other-than-temporary impairment should be recoded as $28 ($100-$72) as of December 31, 20X1. On January 31, 20X2, when the price of the stock went up to $75, the other-than-temporary impairment should be recoded as $25 ($100-$75). If the share price was $95 instead of $75 on January 31, 20X2, I think no other-than-temporary impairment needs to be recorded, because there is no material decrease occurred.

An impairment loss shall be recognized only if the carrying amount of a long-lived asset (asset group) is

The authoritative guidance for asset impairment is to ensure that impairment is recorded and dealt with as depreciation. The scope of the standard is writing off of assets and depreciation. According to the guidance of 360-10-35, it address how long-lived assets that are intended to be held and used in an entity’s business shall be reviewed for impairment. The impairment loss can only be recognized if the carrying amount of a long-lived assets is not recoverable and

However, this impairment test is only required if the fair value of the reporting unit is less then the carrying amount of the unit. Therefore, if after computing the fair value of the reporting unit, the firm discovers that it is less than the unit’s carrying value, the firm must complete the two-step goodwill impairment test (“ASC 2011-08 Topic 350” 1-2). Additionally, a firm may evaluate qualitative aspects to determine whether there is a more than a 50 percent chance that the fair value of a reporting unit, including goodwill, is less than the unit’s carrying amount. These qualitative factors include macroeconomic conditions, industry and market conditions, and overall financial performance. However, a firm can reject conducting the qualitative analysis and initiate the two-step goodwill impairment test if it so

Therefore, I believe that management should have performed an interim goodwill step 1 impairment test as of September 30, 2012 to determine whether the fair value of the reporting units have either gone below its carrying value during the interim period.

“What is goodwill?” Based on the information on the internet, goodwill is defined as “the excess of purchase price over the fair market value of a company 's identifiable assets and liabilities.” Moreover, goodwill is reported as a non-current asset on the balance sheet. But the U.S companies are not required to amortize the record amount of goodwill since 2001. Because the value of goodwill is highly subjective, the accounting standard requires the goodwill to have impairment test at least once per year in order to determine the amount of goodwill. However, when reporting the goodwill in terms of valuation and impairment, there are some rules that people need to follow under the US GAAP. Moreover, there are also some similarities and differences regarding valuation and impairment of goodwill between US GAAP(Generally Accepted Accounting Principles) and IFRS(International Financial Reporting Standards).

The main reason why standard setters decided to substitute amortisation with impairment is that the first approach is expected to be based on an arbitrary time period, failing to provide useful information to the users of financial statements (Jennings et al. 2001; Moehrle et al. 2001): requiring amortisation of a fixed amount of goodwill every year implicitly requires that goodwill decreases on a systematic basis, but this is not necessarily the case.

There are five sections in this report – the amount of impairment, the causes of impairment, managements’ assessment of the significance, impact of impairment on the current and future performance and advice for investment - which mainly focus on analysis of impairment.