Question

Which of the following circumstances would require a write-down of goodwill?

a) Increase in market value of identifiable assets
b) Decline in the fair value of a reporting unit
c) Normal fluctuations in foreign exchange rates
d) Increase in future cash flows

Answer 1

A write-down of goodwill is required in the case of a decline in the fair value of a reporting unit, indicating potential impairment of the goodwill.

Step-by-step explanation:

The circumstance that would require a write-down of goodwill is a decline in the fair value of a reporting unit. Goodwill is an intangible asset that represents the excess of purchase price over the fair value of the net identifiable assets of a business when acquired.

According to accounting principles, if the fair value of a reporting unit, including its goodwill, drops below its carrying value, this indicates that the goodwill may be impaired and a write-down is required. An increase in market value of identifiable assets, normal fluctuations in foreign exchange rates, or an increase in future cash flows would not necessitate a write-down of goodwill.