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a) If fair market value of net assets is more than carrying value or book value of net assets b) If fair market value of net assets is less than carrying value or book value of net assets c) If fair market value of net assets is equal to carrying value or book value of net assets d) All of above
SURELY its "B"
Because Goodwill that has become or is considered to be of lower value than at the time or purchase. From an accounting perspective, when the carrying value of the goodwill exceeds the fair value, then it is considered to be impaired. Negative publicity about a firm can create goodwill impairment, as can the reduction of brand-name recognition.
b
b) If fair market value of net assets is less than carrying value or book value of net assets
Fair market value is less than carrying amount of the asset
The option B is right, but the word Fair Value used in option is not right. It is basically a word "Recoverable amount" which is defined in IAS-36 in the following words:
"The higher of an asset's fair value less cost to sell (sometimes called net selling price) and its value in use"
Fair Value
"The amount obtainable from the sell of an asset in an arm's length transaction between knowledgeable willing parties".
Value in Use
"The discounted present value of the future cash flows expected to arise from:
a- the continuing use of an asset, and from
b- its disposal at the end of its useful life
An asset is impaired when its carrying value exceeds its revoverable amount.
Goodwill is reuired to be tested annually at every balance sheet date and if there is an indication
that it may be impaired.
