Technical Accounting, Valuation Testing & US GAAP ASC 350
ASC 350 Goodwill Impairment & Simultaneous Tax Gross-Up Formula
Calculate US GAAP ASC 350 Reporting-Unit Valuation Surplus/Deficit, Non-Deductible Stock-Deal Goodwill Impairment, ASC 350-20-35-8C Tax-Deductible Simultaneous-Equation Impairment Gross-Up, and Post-Impairment Goodwill.
Solve ASC 350’s simultaneous-equation Deferred-Tax circularity in one closed-form step!
Under ASU 2017-04’s simplified single-step ASC 350 Goodwill Impairment test, a reporting unit compares Fair_Value against Carrying_Value (including Goodwill): for non-tax-deductible stock-deal goodwill, Impairment Loss simply equals MIN(Goodwill_Balance, MAX(0, Carrying_Value - Fair_Value))! Watch what happens when impaired goodwill IS tax-deductible (from a prior asset purchase or Section 338(h)(10) election): writing down book goodwill below its remaining tax basis creates a new Deferred Tax Asset (DTA = Impairment * Tax_Rate), which INCREASES the reporting unit’s Carrying Value and triggers a circular loop! ASC 350-20-35-8C resolves that loop exactly via the Simultaneous Gross-Up Factor 1 / (1 - Tax_Rate): Simultaneous_Impairment = MIN(Goodwill_Balance, MAX(0, Carrying_Value - Fair_Value) / (1 - Tax_Rate))!
Verify the exact circular balance—Reporting_Unit_Carrying_Value = $250.00M (B2), Fair_Value = $220.00M (B3 -> -$30.00M Deficit in E2), Allocated_Goodwill_Balance = $60.00M (B4), and Tax_Deductible_Goodwill_Rate = 0.25 (25.0%, B5): Unadjusted Stock-Deal Impairment would be $30.00M (E3), whereas ASC 350 Tax-Deductible Simultaneous Impairment is MIN(60, 30 / (1 - 0.25)) = $40.00M (E4), leaving $20.00M of Post-Impairment Goodwill (E5)! Check the proof by hand: a $40M goodwill write-down adds a $40M * 25% = +$10M DTA, bringing post-test Carrying Value to $250M - $40M + $10M = $220M = Fair Value identically!
| ASC 350 Impairment Metric ($250M Carrying, $220M Fair Value, $60M GW, 25% Tax) | Formula | Verified Output |
|---|---|---|
| Valuation Headroom / Deficit ($M) | Fair_Value - Carrying_Value | -$30.00M (+$30.00M @ $280M FV) |
| Non-Deductible Impairment ($M) | MIN(GW, MAX(0, Carrying - Fair_Value)) | $30.00M ($0.00M @ $280M FV) |
| Simultaneous Tax-Deduct Loss ($M) | MIN(GW, MAX(0, Deficit) / (1 - Tax)) | $40.00M ($0.00M @ $280M FV) |
| Ending Goodwill Balance ($M) | Goodwill_Balance - Simultaneous_Loss | $20.00M ($60.00M @ $280M FV) |
ASC 350-20-35-8C Tax-Deductible Simultaneous Goodwill Impairment Formula
Validate Carrying_Value > 0, Fair_Value > 0, 0 < Goodwill_Balance <= Carrying_Value, and Tax_Rate in [0, 0.55)!
=LET(cv_r, B2, fv_r, B3, gw_b, B4, tx_r, B5, IF(OR(cv_r <= 0, fv_r <= 0, gw_b <= 0, gw_b > cv_r, tx_r < 0, tx_r >= 0.55), "Invalid ASC 350 Impairment Input", LET(df_c, MAX(0, cv_r - fv_r), ROUND(MIN(gw_b, df_c / (1 - tx_r)), 2))))Positive Headroom Pass Check (Set Reporting Unit Fair Value = $280.00M)
Raise Fair_Value B3 to $280.00M (+$30.00M Headroom in E2): both Impairment measures E3 and E4 equal $0.00M, preserving the full $60.00M Goodwill Balance in E5!
=IF(ISTEXT(E4), E4, ROUND(B4 - E4, 2))Try the example
Use the original values or change them to test your understanding.