Goodwill is an intangible asset that arises from the acquisition of a business and represents the difference between the purchase price and the value of the identified assets and liabilities. Impairment testing for goodwill is different from that of other assets because goodwill does not depreciate on a linear basis. Instead, it must be tested annually for impairment, regardless of whether there are indications of value decline.

Annual impairment testing of goodwill is mandatory. If the recoverable amount is lower than the carrying amount, an impairment loss is recognized.