Intangible assets
Goodwill impairment CPA exam questions are now one comparison, not two. The loss is the amount by which the reporting unit’s carrying amount including goodwill exceeds its fair value, limited to the goodwill carried in that unit. The older two-step calculation — deriving an implied fair value of goodwill and comparing it to the carried amount — still appears in study material and produces a plausible wrong number.
| Blueprint group | FAR-II-F |
| Area weight | 30–40% |
| Approx. share of the exam | 3.9% |
What the Blueprint asks for here
At this group the Blueprint expects a candidate to determine the carrying amount of intangible assets at acquisition and at subsequent reporting dates, to distinguish intangibles with finite lives from those with indefinite lives, to calculate amortisation and impairment, and to prepare the entries that follow.
This is our paraphrase, not the Blueprint’s wording. verbatim quote pending The authoritative representative-task text is in the AICPA Blueprints, which are published free — download them and read the group directly. We will not print a quotation we have not taken from the source document.
Goodwill impairment CPA exam items: intangible assets in FAR
Why this group is worth its weight
Intangibles is the group where the answer depends most heavily on a classification made before any number is computed, and where the classification vocabulary is unusually unforgiving. Finite-lived, indefinite-lived and goodwill are three categories with three different subsequent measurement rules, and a fact pattern that names an intangible without naming its life is telling you that the classification is the question.
Three categories, three rules
A finite-lived intangible is amortised over its useful life and tested for impairment only when events indicate the carrying amount may not be recoverable, using the two-part recoverability test: undiscounted future cash flows first, fair value second. An indefinite-lived intangible is not amortised and is tested at least annually, comparing carrying amount directly to fair value with no undiscounted step. Goodwill is not amortised, is tested at the reporting unit level, and has its own comparison, described below.
The goodwill test, stated once
Compare the reporting unit’s carrying amount, goodwill included, with its fair value. If the carrying amount is higher, the impairment loss is the difference, limited to the amount of goodwill assigned to that unit. There is no undiscounted cash flow step, and there is no comparison of implied goodwill to carried goodwill. Two things follow that the exam likes to test: the loss can never exceed the goodwill in the unit, and comparing fair value to the carrying amount excluding goodwill answers a question nobody asked.
What is capitalised in the first place
Internally developed goodwill is never recognised. Research and development costs are expensed as incurred, with a narrow set of exceptions for assets that have alternative future uses. Legal costs of successfully defending a patent are capitalised; the costs of an unsuccessful defence are not, and the carrying amount of the patent is written off. Each of those is a one-line rule that a fact pattern can turn into a full item.
The standard this group is examined on is published by the standard setter: FASB Accounting Standards Codification. The Blueprint coordinates and weight ranges above come from the AICPA Blueprints. What is ours, and labelled as ours, is the reading, the practice item and the misconception tags.
A practice item
our own practice item Written by us against the public Blueprint. It is not an AICPA question and it is not taken from any review course.
A reporting unit has a carrying amount of $900,000, which includes $250,000 of goodwill assigned to that unit. At the annual test date the fair value of the reporting unit is $780,000.
What goodwill impairment loss should be recognised?
| A | $120,000 | correct |
| B | $250,000 | |
| C | $0 | |
| D | $130,000 |
The rule
Goodwill is tested for impairment at the reporting unit level. The impairment loss is the amount by which the reporting unit's carrying amount, including the goodwill assigned to it, exceeds the reporting unit's fair value, and the loss recognised cannot exceed the amount of goodwill allocated to that unit. There is no undiscounted cash flow step and no separate measurement of an implied fair value of goodwill.
The arithmetic
Carrying amount $900,000 less fair value $780,000 gives a shortfall of $120,000, which is below the $250,000 of goodwill in the unit and so is recognised in full. Comparing fair value with the carrying amount excluding goodwill would give $780,000 against $650,000 and no loss at all; the superseded two-step model would have produced $250,000 − $120,000 = $130,000 of implied goodwill, which is the distractor.
What we would ask you first
This is the part of the product that is hard to show without an account, so here it is directly: for each wrong option above, the opening question our tutor asks — before any explanation — targeting the specific mistake that option represents. Choosing B ($250,000) and choosing D ($130,000) are different errors and deserve different first questions.
If you chose B — goodwill_written_off_entirely
“You wrote off all of the goodwill because the unit failed the test. Failing the test and being worthless are different findings — by how much did the unit actually fail?”
If you chose C — carrying_amount_excluding_goodwill
“You compared the fair value with $650,000, which is the carrying amount with the goodwill taken out. Read the test again: which carrying amount is the comparison made against?”
If you chose D — implied_goodwill_step
“Your figure is the goodwill that would be left after the shortfall — the implied fair value of goodwill from the older two-step model. The current test does not compute an implied goodwill amount at all. What is it comparing instead?”
To be precise about what happens next: the exchange is a rate limit, not a gate. Answering well gets you to the full worked explanation in three or four exchanges; answering badly still gets you there. And if you would rather skip it, asking three times gets you the walkthrough.
Common questions
How is a goodwill impairment loss measured?
As the amount by which the reporting unit's carrying amount, including the goodwill assigned to it, exceeds the reporting unit's fair value. The loss cannot exceed the goodwill carried in that unit. There is no undiscounted cash flow step and no separate calculation of an implied fair value of goodwill.
Is goodwill amortised?
Not by a public business entity. Goodwill is not amortised and is tested for impairment at the reporting unit level, at least annually and whenever events indicate the fair value of a unit may be below its carrying amount. Finite-lived intangibles are amortised; indefinite-lived intangibles are not, and are tested annually against fair value.
Misconception tags in this group
These are the labels our diagnosis attaches when a wrong answer matches a known pattern. They are worth reading even if you never use the product — naming your own error is most of the work.
goodwill_written_off_entirely— Writing off all assigned goodwill whenever a reporting unit fails the test.carrying_amount_excluding_goodwill— Comparing fair value with the carrying amount net of goodwill.implied_goodwill_step— Applying the superseded two-step model and reporting implied goodwill.undiscounted_step_applied_to_goodwill— Running the undiscounted cash flow recoverability test on goodwill, which applies to finite-lived assets.indefinite_life_amortised— Amortising an indefinite-lived intangible instead of testing it annually.