Question

an asset is classified as goodwill on the balance sheet when a company purchases an asset at greater than fair market value.
QUESTION: According to GAAP, you can adjust goodwill when____
1)a new asset is purchased
2)stock prices go up
3)an asset is sol
4)goodwill is impaired
5)stock prices go down

Answer 1

Answer:

4) goodwill is impaired

Explanation:

Answer 2

As per GAAP, the goodwill could be adjusted when the goodwill is impaired.

As we know that

• For tangible assets like plant & machinery, furniture & fixtures the depreciation expense should be charged.
• For intangible assets like copyrights, patents, etc, the amortization should be charged but for goodwill, the impairment should be charged.
• The impairment should be done periodically and fall in the amount of goodwill and it should be recorded as the impairment loss.

The other options should be incorrect.

Therefore we can conclude that option 4th is correct.

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