Impairment testing

Impairment tests – investigations into the impairment of the ‘capitalised goodwill’ item in the balance sheet – are designed to verify whether the acquisition price that was paid for a company on its sale is still accurate. A discounted cash flow (DCF) model and a multiple valuation are generally used to determine the fair value, which is compared against the carrying amount (book value) of the asset in question.

According to the International Financial Reports Standards (IFRS), companies subject to this regulation are required to perform an impairment test. This might apply, for example, to paid goodwill related to an acquisition, acquired or capitalised trademark rights and the like, or if these rules apply to your company on account of certain funding terms.