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.

Conditions that require goodwill impairment testing:

• Annual testing

  According to accounting standards (IAS 36), goodwill must be tested at least once a year to determine if its value has declined.

• Indicators of impairment

  If significant events or changes occur that suggest a decline in the value of goodwill (e.g., decreased cash flows of the acquired unit or poor performance of the acquired business), an additional impairment test must be conducted.

Conclusion:

Impairment testing of assets or goodwill is necessary when there are indicators suggesting a significant decline in their value or, in the case of goodwill, annually, regardless of the existence of such indicators. This ensures compliance with accounting standards and provides an accurate reflection of asset values in the financial statements.