Goodwill Impairment Test in Excel: ASC 350 Guide (2026)

The single most expensive mistake in a goodwill impairment test in Excel is a subtraction that looks right. You compare a reporting unit's carrying amount of $420M to a fair value of $350M, write off $70M, and move on. If that unit's goodwill is tax-deductible, the correct answer under ASC 350-20 is $93.3M — a third larger — because writing down book goodwill releases a deferred tax liability, which pushes the carrying amount back up, which widens the gap you were trying to close.

That circularity is in the standard by design, and it catches experienced analysts every year. This guide builds the whole test in Excel: the qualitative screen, the carrying amount, the fair value, the tax gross-up, and the journal entries — with the formulas you can paste into a live model.

What is a goodwill impairment test, and when do you have to run one?

A goodwill impairment test compares a reporting unit's fair value to its carrying amount, including allocated goodwill. If the carrying amount is higher, you record an impairment loss equal to the excess, capped at the goodwill allocated to that unit. Public companies must test annually at the same date each year, plus at any interim triggering event.

The annual test

ASC 350-20-35-28 requires an annual test performed at the same time every year. Most calendar-year filers pick October 1 so the valuation work lands before the year-end close crunch. The date is a policy election — you can use different dates for different reporting units, but you cannot move a unit's date opportunistically.

Triggering events

Between annual tests, a triggering event forces an interim test. In practice, the ones that actually show up in impairment memos are:

1. Sustained share price decline — market cap below book equity for more than a quarter or two
2. Loss of a major customer or contract in a unit whose forecast leaned on it
3. Missing the budget that supported last year's fair value conclusion by a wide margin
4. Adverse regulatory or legal outcomes specific to the unit
5. A decision to sell or restructure the unit at a value below carrying amount
6. Macro shocks — a rate move that lifts your discount rate materially

⚠️ Warning: Building the annual test as a one-off workbook every October is how teams end up re-deriving assumptions from scratch under time pressure. Build it once with the valuation date as an input cell, and the interim test becomes a date change rather than a rebuild.

How does the one-step test work after ASU 2017-04?

ASU 2017-04 removed old Step 2 — the hypothetical purchase price allocation that required you to re-value every asset in the unit. Since fiscal years beginning after December 15, 2019 for public filers, impairment is simply the excess of carrying amount over fair value, limited to the goodwill allocated to the reporting unit. No hypothetical PPA, no implied goodwill calculation.

That simplification is why this test is now genuinely modelable in a single workbook. What used to require a full valuation of every intangible in the unit is now one subtraction — plus the tax wrinkle covered below.

graph TD
    A["Annual test date or triggering event"] --> B{"Elect optional qualitative screen?"}
    B -->|"Yes"| C{"More likely than not that FV is below carrying amount?"}
    C -->|"No"| D["No further testing - document the conclusion"]
    C -->|"Yes"| E["Quantitative test required"]
    B -->|"No"| E
    E --> F["Test other assets first: ASC 360 asset groups and ASC 350-30 indefinite-lived intangibles"]
    F --> G["Build the reporting unit carrying amount"]
    G --> H["Estimate reporting unit fair value: DCF plus market approach"]
    H --> I{"Carrying amount above fair value?"}
    I -->|"No"| D
    I -->|"Yes"| J["Impairment equals the gap, capped at allocated goodwill"]
    J --> K{"Is the goodwill tax deductible?"}
    K -->|"No"| L["Record loss equal to the gap"]
    K -->|"Yes"| M["Gross up the gap by one minus the tax rate, then cap"]

The optional qualitative screen (Step 0)

Before running numbers, ASC 350-20-35-3 lets you assess qualitatively whether it is more likely than not — greater than 50% — that fair value is below carrying amount. If not, you stop. Model this as a documented scorecard rather than a formula, but do keep one quantitative anchor in the workbook: the cushion from the last quantitative test.

=LET(
  cushion,   Prior_Fair_Value / Prior_Carrying_Amount - 1,
  headroom,  TEXT(cushion, "0.0%"),
  IF(cushion < 0.20,
     "Thin cushion (" & headroom & ") - run the quantitative test",
     "Cushion " & headroom & " - qualitative screen may be supportable")
)

A unit that cleared last year by 8% is not a Step 0 candidate this year. A unit that cleared by 140% usually is.

How do you build the reporting unit carrying amount in Excel?

The carrying amount is the net book value of the assets and liabilities assigned to the reporting unit, including its allocated goodwill and any deferred taxes that relate to it. Assign an asset or liability to a unit if it is employed in that unit's operations and would transfer with it in a sale. This step, not the valuation, is where most restatements originate.

What goes in, what stays out

Item	Include in the RU carrying amount?	Why
Working capital of the unit	Yes	Directly employed in operations
PP&E used by the unit	Yes	Test under ASC 360 first, then carry at post-test NBV
Acquired intangibles from the PPA	Yes	Indefinite-lived ones tested under ASC 350-30 first
Allocated goodwill	Yes	Assigned at acquisition by relative fair value
Corporate debt	Only if managed at the unit level	Must be consistent with the fair value basis used
Deferred taxes on unit assets	Yes	Required, and the driver of the circularity below
Corporate shared services assets	Allocate on a reasonable, consistent basis	Must be applied the same way year over year
Assets held for sale	No	Carried and tested under separate guidance

💡 Pro Tip: Whatever you decide about debt, the fair value must match. If you include allocated debt in the carrying amount, your fair value has to be an equity value. If you exclude it, fair value must be enterprise value. Mixing the two is the single most common error auditors flag, and it is trivially avoidable with a validation cell.

=IF(Basis_Carrying = Basis_FairValue,
    "OK - both on " & Basis_Carrying & " basis",
    "FAIL - carrying amount is " & Basis_Carrying & " but fair value is " & Basis_FairValue)

A worked carrying amount

Take Meridian Logistics, a reporting unit acquired in 2022 and tested on an equity basis. Book goodwill is $165M; the remaining tax basis in that goodwill is $45M, and the statutory rate is 25%.

Component	$M	Note
Net working capital	62.0	Directly attributable
PP&E, net	245.0	After the ASC 360 recoverability test
Customer relationships, net	78.0	From the 2022 purchase price allocation
Trade name, indefinite-lived	20.0	Tested under ASC 350-30 first — no impairment
Other assets	5.0
Goodwill allocated	165.0	Relative fair value allocation at acquisition
Total assets	575.0
Allocated debt	(90.0)	Managed at the unit level
Other liabilities	(35.0)
Deferred tax liability on goodwill	(30.0)	25% × ($165.0 book − $45.0 tax)
Carrying amount	420.0

The deferred tax liability line is the one to watch. It exists because book goodwill exceeds the remaining tax basis, and it is what makes the impairment math circular. If you are building the DTL schedule from scratch, our deferred tax model in Excel walks through the temporary difference mechanics.

=LET(
  temp_diff,  Book_Goodwill - Tax_Goodwill,
  Tax_Rate * temp_diff
)

The goodwill balance itself should trace directly to the acquisition-date allocation. If you cannot tie it, rebuild it from the deal file — the purchase price allocation in Excel walkthrough covers the relative fair value assignment that produced it.

How do you estimate reporting unit fair value?

Fair value is the price to sell the unit in an orderly transaction between market participants (ASC 820). In practice you build a discounted cash flow, corroborate it with a market approach, weight the two, and then reconcile the sum of all reporting unit fair values back to your company's market capitalization plus a reasonable control premium.

The income approach

The DCF is the workhorse. Two details matter more here than in a normal valuation:

Market participant assumptions, not management's. If your forecast includes synergies only your company could achieve, strip them out. Fair value is what a market participant would pay.

A unit-specific discount rate. The consolidated WACC is rarely right for a single reporting unit. Adjust for the unit's own risk profile and capital structure. Our WACC calculation in Excel guide covers the build; for the projection mechanics and terminal value, see the DCF model in Excel step-by-step walkthrough.

=LET(
  pv_explicit,  NPV(Discount_Rate, FCF_Range),
  tv,           INDEX(FCF_Range, COUNT(FCF_Range)) * (1 + Terminal_Growth)
                / (Discount_Rate - Terminal_Growth),
  pv_tv,        tv / (1 + Discount_Rate) ^ COUNT(FCF_Range),
  pv_explicit + pv_tv
)

Use mid-year convention if that is your house standard, and apply it consistently across units — an inconsistency between two units in the same test is an audit finding waiting to happen.

The market approach and the market cap reconciliation

Corroborate with trading multiples of comparable companies and, where available, precedent transactions. Then run the reconciliation ASC 350-20-35-22 effectively requires: the aggregate fair value of all reporting units, adjusted for corporate items, compared to your observed market capitalization.

=LET(
  sum_ru_fv,   SUM(RU_Fair_Values),
  net_corp,    Corporate_Assets - Corporate_Liabilities,
  implied_eq,  sum_ru_fv + net_corp,
  mkt_cap,     Share_Price * Shares_Outstanding,
  premium,     implied_eq / mkt_cap - 1,
  IF(premium > 0.35,
     "Implied control premium " & TEXT(premium, "0.0%") & " - support required",
     "Implied control premium " & TEXT(premium, "0.0%") & " - within typical range")
)

ℹ️ Note: There is no bright-line cap on control premiums, but an implied premium north of 30–35% invites a hard question. If your reconciliation only works with a 60% premium, the more likely explanation is that a reporting unit forecast is too optimistic.

How does tax-deductible goodwill change the impairment calculation?

When goodwill is tax-deductible, writing it down shrinks the book-versus-tax difference, which releases deferred tax liability, which increases the reporting unit's carrying amount. Closing the original gap therefore requires a larger write-down. ASU 2017-04 requires you to reflect this, and the closed-form answer is the gap divided by one minus the tax rate.

The circularity, in one loop

graph LR
    A["Goodwill written down"] --> B["Book vs tax goodwill difference narrows"]
    B --> C["Deferred tax liability falls"]
    C --> D["Reporting unit carrying amount rises"]
    D --> E["Gap to fair value widens"]
    E --> A

Solving it without iteration

You do not need Excel's iterative calculation for this. Let I be the impairment, t the tax rate. The write-down reduces carrying amount by I and releases t × I of deferred tax liability, so:

Carrying amount after = Carrying amount before − I + (t × I)
                      = Carrying amount before − I × (1 − t)

Setting that equal to fair value and solving gives a single formula:

=MIN(
   MAX(Carrying_Amount - Fair_Value, 0) / (1 - Tax_Rate),
   Goodwill_Allocated
 )

For non-deductible goodwill, t drops out entirely:

=MIN(MAX(Carrying_Amount - Fair_Value, 0), Goodwill_Allocated)

Example: Meridian's carrying amount is $420.0M against a fair value of $350.0M — a $70.0M gap. Non-deductible goodwill gives a $70.0M loss. Tax-deductible goodwill gives $70.0 ÷ (1 − 25%) = $93.3M, with a $23.3M deferred tax benefit. The after-tax hit to earnings is $93.3 − $23.3 = $70.0M — exactly the value gap. The gross number changes; the economics do not.

Verify it closes:

Line	$M
Carrying amount before	420.0
Goodwill impairment	(93.3)
Deferred tax liability released (25% × 93.3)	23.3
Carrying amount after	350.0
Fair value	350.0
Residual gap	0.0

Two conditions that break the shortcut

The goodwill cap binds. If the grossed-up loss exceeds the goodwill allocated to the unit, you stop at the goodwill balance and a residual gap remains. Push Meridian's fair value to $260M and the uncapped answer is $160.0 ÷ 0.75 = $213.3M against only $165.0M of goodwill. You write off $165.0M, and carrying amount lands at $296.3M — still above fair value. That is the correct outcome under ASC 350-20-35-2; goodwill is the only asset in play at this stage, which is precisely why ASC 360 and ASC 350-30 testing comes first.

Book goodwill falls below tax goodwill. The arithmetic above still holds — t × (Book − Tax) simply turns negative — but the accounting changes: you now have a deferred tax asset, which raises recognition and valuation allowance questions under ASC 740. Model the number, then get technical accounting to sign off before you book it.

⚠️ Warning: Do not solve this with a self-referencing cell and iterative calculation switched on. Impairment is a point-in-time measurement, not a live circularity like a revolver, and leaving iteration enabled workbook-wide will silently mask genuine circular references in your financial model. Use the closed-form formula, or Goal Seek if you prefer to see it converge.

What are the journal entries and downstream impacts?

With a $93.3M impairment on tax-deductible goodwill at a 25% rate:

Account	Debit ($M)	Credit ($M)
Goodwill impairment loss (operating expense)	93.3
Goodwill		93.3
Deferred tax liability	23.3
Deferred income tax expense (benefit)		23.3

Then check what breaks in the rest of your model:

• Income statement: the loss sits in operating expenses, not below the line. It is added back in EBITDA and in most non-GAAP measures, but it does hit GAAP operating income.
• Cash flow statement: a non-cash add-back in operating activities. Net cash flow is unchanged.
• Debt covenants: most credit agreements carve out non-cash impairments from EBITDA, but net worth covenants often do not. Check the definitions before assuming the loss is cosmetic — a debt covenant compliance model makes this a formula rather than a memory test.
• Deferred taxes: the released DTL may have been supporting recognition of other deferred tax assets. Re-run the valuation allowance assessment.

ASC 350 vs IAS 36: how do the two frameworks differ?

US GAAP tests goodwill at the reporting unit level against fair value and permits a qualitative screen. IFRS tests at the cash-generating unit level against recoverable amount — the higher of fair value less costs of disposal and value in use — and requires a quantitative test every year. Neither framework permits reversing a goodwill impairment.

Dimension	ASC 350-20 (US GAAP)	IAS 36 (IFRS)
Unit of account	Reporting unit: operating segment or one level below	Cash-generating unit or group of CGUs, no larger than an operating segment
Measurement benchmark	Fair value (ASC 820)	Recoverable amount: higher of FVLCD and value in use
Qualitative screen	Permitted and widely used	Not permitted for goodwill — annual quantitative test required
Loss measurement	Carrying amount less fair value, capped at unit goodwill	Carrying amount less recoverable amount, applied to goodwill first, then pro rata to other assets
Cash flows in the model	Market participant assumptions; may include future capex and restructuring	Value in use uses the asset in its current condition — excludes future restructuring and enhancement capex
Reversal of goodwill impairment	Prohibited	Prohibited
Private company relief	Amortization alternative available	None

The value in use restriction is the one that trips up dual-reporting groups: an IFRS value in use calculation cannot include the benefit of a restructuring the entity is not yet committed to, while a US GAAP fair value can reflect what a market participant would do. The same unit can legitimately produce two different numbers.

What is the private company accounting alternative?

Private companies and not-for-profits can elect the ASC 350-20 accounting alternative: amortize goodwill straight-line over 10 years or less, test only when a triggering event occurs, and test at the entity level or the reporting unit level. ASU 2021-03 further allows electing entities to evaluate triggering events only as of the annual reporting date rather than continuously.

=LET(
  annual_amort,  Goodwill_Gross / Useful_Life_Years,
  months_held,   DATEDIF(Acquisition_Date, Period_End, "m"),
  MIN(annual_amort / 12 * months_held, Goodwill_Gross)
)

The trade-off is real. Amortization smooths earnings and drastically reduces valuation spend, but it steadily lowers the carrying amount of goodwill — which is fine until a private company starts preparing for an IPO, at which point the alternative must be unwound retrospectively. If a public exit is plausible within three years, most CFOs skip the election.

ℹ️ Note: FASB removed its goodwill subsequent-accounting project from the technical agenda in 2022, leaving public companies on the impairment-only model. Periodic speculation about reintroducing amortization for public filers resurfaces, but as of 2026 nothing has been proposed.

A review checklist before you circulate the file

Run these seven checks before the memo goes to the audit committee:

1. Basis consistency — equity carrying amount against equity fair value, or enterprise against enterprise, in every unit
2. Goodwill tie-out — allocated goodwill by unit sums to the consolidated balance
3. Testing order — ASC 360 asset groups and ASC 350-30 indefinite-lived intangibles tested before goodwill
4. Deferred tax linkage — the DTL in carrying amount uses the same book and tax goodwill balances as the tax provision
5. Tax gross-up applied — only to units whose goodwill is actually deductible, which is a deal-by-deal fact, not a company-wide one
6. Market cap reconciliation — implied control premium documented and defensible
7. Zero or negative carrying amount units — flagged for the ASC 350-20-50 disclosure, since these never fail a quantitative test but still carry goodwill

Every one of those is a formula, not a judgment call, which means every one of them can live as a permanent check row in the workbook. The broader pattern is covered in our financial model audit checklist.

Frequently Asked Questions

Can a goodwill impairment be reversed if the business recovers?

No. Under both US GAAP (ASC 350-20-35-13) and IFRS (IAS 36.124), a goodwill impairment loss is permanent and can never be reversed, even if the reporting unit fully recovers. IFRS permits reversals for most other assets but explicitly carves out goodwill. The written-down balance becomes the new carrying amount for all future tests.

Is goodwill impairment tax deductible?

The book impairment itself is not a tax deduction. Whether deferred tax moves depends on the deal structure: goodwill from an asset acquisition or a Section 338 election generally carries tax basis amortized over 15 years, so a book write-down changes the temporary difference and produces a deferred benefit. Goodwill from a straight stock acquisition typically has no tax basis, making the impairment a permanent difference.

What counts as a triggering event for an interim test?

Any event or change in circumstances that makes it more likely than not that a reporting unit's fair value has fallen below its carrying amount. The recurring ones are a sustained share price decline, loss of a major customer, a significant budget miss, adverse legal or regulatory developments, a change in the unit's business climate, and a decision to dispose of a material part of the unit.

How do you determine reporting unit fair value in Excel?

Build a DCF using market participant cash flows discounted at a unit-specific rate, then corroborate with trading multiples of comparable companies. Weight the two approaches, sum across all reporting units, and reconcile the total to market capitalization plus a supportable control premium. That reconciliation is the check auditors look at first.

Do private companies have to test goodwill for impairment every year?

Only if they have not elected the accounting alternative. Electing entities amortize goodwill over ten years or less and test only upon a triggering event — and under ASU 2021-03 they may assess triggering events solely as of the annual reporting date. Non-electing private companies follow the same annual testing requirement as public filers.

Putting it into practice

The mechanics of a goodwill impairment test are genuinely simple after ASU 2017-04 — one subtraction, one cap, one tax gross-up. The difficulty is entirely in the carrying amount build and the discipline to keep the fair value basis consistent with it. Get those two right and the test becomes a twenty-minute update rather than a three-week fire drill.

Build it once, parameterize the valuation date and tax rate, and leave the seven checks live in the file. If you would rather describe the calculation in plain English than hand-build the nested LET formulas, Dezzmond generates and audits them directly inside Excel — useful when you are working a test against a close deadline and want the tax gross-up logic verified before it reaches the audit committee.

Next quarter, run the cushion calculation across every reporting unit before you commission a single valuation. The units with 8% headroom are where your budget belongs.