Appraisal Economics Inc. has tested for, and determined the amount of, goodwill impairment for each reporting unit of a publicly traded company for ASC 350. We considered the market capitalization of the common equity. We also valued the preferred equity held by a private equity fund, which included a liquidation preference and a conversion feature. We performed a discounted cash flow analysis for each reporting unit and the publicly traded parent company. Once we concluded the fair value of each reporting unit, we compared each reporting unit’s fair value to its book value. For the reporting unit that we determined was impaired, we appraised and subtracted the fair value of these assets from its enterprise value. The difference is the fair value of goodwill, and the amount by which the goodwill’s fair value was less than its carrying value was the amount of goodwill impairment.
With the issuance of Accounting Standards Update 2017–04 in January 2017, as early as January 2017 and no later than 2020, “Step 2” has been eliminated and goodwill impairment will be calculated as the excess of the reporting unit’s carrying value over the reporting unit’s fair value. This eliminates the need to value all of the company’s assets as though there were a business combination on the testing date, reducing the complexity and compliance costs associated with ASC 350.