Is goodwill tested for impairments at least annually under both IFRS and GAAP? In schweser it says that under GAAP it is tested only when events and circumstances indicates the firm may not be able to recover the carrying value through future use. But then in the practice exams it says that both test for goodwill at least annually.
Also, if a company switches from straight line depn method to accelerated depn method, shouldnt the asset turnover decrease over time? I reasoned that since depn will be higher in the first years BV of assets will be lower in first years and higher in later years, thereby increasing assets.
I was under the impression goodwill impairment testing was done only when deemed necessary and no definitive frequency was necessary (applied to both IFRS & GAAP). As for your second statement:
TAT = Rev/avg assets therefore i would suspect your statement to be correct with time. Have you read something else?
IFRS tests goodwill impairment annually, GAAP does it on an as-needed basis.
As far as depreciation is concerned, asset turnover will always be higher under the accelerated method. Think about the final year of an asset being depreciated to 0 - the depreciation expense under accelerated is going to be significantly lower than under SL but the net PP&E will be the same after the depreciation (meaning you started with a lower PP&E figure in that year under accelerated). In essence, there will be no “crossover” point where PP&E is less under accelerated - if the closest it comes is when it’s equal at the end of the assets life.
Did I sufficiently confuse? Mind works in mysterious ways…
@cgattuso if Net PPE is the same at the end, how come asset turnover is always higher under the accelerated method?
@whats your govt - I was pretty sure that IFRS tests goodwill impairment annually, GAAP does it on an as-needed basis, but a practice exam question confused me saying that 'must be reviewed for impairment at least annually, with different test for impairment under IFRS and US GAAP.
Because in the intial year(s), the depreciation expense was higher than under SL, resulting in a lower Net PP&E value (higher turnover). From then on, there never comes a point where Net PP&E will be the same or higher under the accelerated method, except at the end of the life when it’s identical.
There has GOT to be a better way to explain this than I am - I’m sorry if I’ve confused you. I’ll try to locate an example.
EDIT: P. 61 in the text or P. 44 in Schweser is a start. In the Schweser example, you can see the depreciation expense so you can just work through it’s effect on the book value of the asset yourself.
If Curriculum and Schweser got conflict, please follow curriculum. And in this case, it would be on annual basis under IFRS and whenever there is any indicators under U.S.GAAP