Essay about Goodwill Impairment at Jackson Enterprises Case

1154 Words Nov 10th, 2015 5 Pages
Xinyun Zhang
ACCT325
Individual Case

Goodwill Impairment at Jackson Enterprises Case
1. When is a company required to perform the two-step test for goodwill impairment? Explain in your own words and provide citation from the ASC.

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
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| ASC 350-20-35-3C(a) | The stock price decreased from $27 to $23 in 2014. | ASC 350-20-35-3C(e) |

ZD Qualitative Factors | Citation | Because of the enhancement of the competitive advantage of our nation's farmers and ranchers, the government creates a business- friendly atmosphere for the company. This could decrease operation cost. The government may give some grants to help company. | ASC 350-20-35-3C(b) | ZD will dominate its competitors in manufacturing process management which results in a cost advantage, as long as the patent is approved for manufacturing process. | ASC 350-20-35-3C(c) | ZD has reduced its utility costs by 15% for two years. Due to these utility cost reduction, ZD earns a state-administered manufacturer energy savings incentive subsidy. | ASC 350-20-35-3C(c) |

According the above assessment of qualitative factors for both companies, I think that the goodwill impairment test is necessary for Dynamic because Dynamic has many negative impacts. Although the Dynamic has 3% of gross profit margins over competitors, it was not enough to offset the negative impacts; I think that the goodwill impairment test is not necessary for ZD. Due to ZD shows all positive impacts improving operation condition.

3. Based upon the information in the case, should Dynamic and ZD be combined or separated for

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