Question

Girodo Company needs to determine if its indefinite-life intangibles other than goodwill have been impaired and should be reduced or written off on its balance sheet. The impairment test(s) to be used is (are)

Recoverability Test Fair Value Test
A) No No
B) Yes No
C) Yes Yes
D) No Yes

Answer 1

Girodo Company should use the Fair Value Test only (Option D: No Yes) for its indefinite-life intangibles other than goodwill, in accordance with ASC 350.

Step-by-step explanation:

The appropriate impairment test(s) for Girodo Company's indefinite-life intangibles other than goodwill is the Fair Value Test only. Specifically, the correct answer is D) No Yes. The Recoverability Test is not typically used for indefinite-life intangibles; instead, it's used for long-lived assets to be held and used.

Under current accounting standards, specifically ASC 350, companies must periodically review indefinite-life intangibles to determine whether the fair value of these assets is less than their carrying amount on the balance sheet. If this is the case, an impairment loss must be recognized for the amount by which the carrying amount exceeds the fair value. However, the presence of impairment is not determined using the Recoverability Test, which estimates future cash flows compared to the carrying amount, as is done with long-lived assets. The Fair Value Test involves comparing the fair market value with the book value of the intangible asset. This test may involve using discounted cash flows, market comparables, or other valuation techniques to accurately assess fair value.