Final answer:
Goodwill impairment losses must be reported on a company's income statement as they reflect adjustments to the carrying value when it exceeds the recoverable amount, impacting financial transparency and investors' perception of the company's health.
Step-by-step explanation:
Goodwill impairment losses, if significant, must indeed be reported on a company's income statement. The question you’re asking is about the accounting treatment for goodwill impairment. According to financial reporting standards, if an entity believes the value of goodwill has been impaired, it must perform an impairment test. When the carrying value of the goodwill on the balance sheet exceeds the recoverable amount, an impairment loss occurs. This loss should then be reported on the income statement as a non-operating loss, reducing the company's reported earnings. The recognition of such losses is critical as it affects investors’ and other stakeholders’ perception of the company's financial health.
For example, if a company has acquired another company, the premium paid over the tangible assets and liabilities is accounted for as goodwill. If the acquired company does not perform as expected, the value of goodwill may not be justified, leading to impairment. Companies need to report these impairments promptly to maintain financial transparency.