After a business combination, and after valuing and booking the assets purchased under ASC 805, companies must also test and re-value certain assets purchased, including Goodwill. Under FASB Accounting Standards Codification No. 350 (ASC 350), companies must test the goodwill purchased for impairment at three different points in time:
- A transitional test, required at the beginning of the fiscal year in which the statement was adopted.
- An interim test, required at the occurrence of certain “trigger events.” These may include changes in the market or business climate that may lead to a lower value for the reporting unit.
- Annual impairment tests. The two-step impairment tests under ASC 350 rely on a valuation that is similar to the purchase accounting valuation required at the time of the acquisition under ASC 805.
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