# Goodwill Impairment Model Build a goodwill impairment model for annual and trigger-based testing under ASC 350 and IAS 36. Integrates income and market approaches with carrying value analysis and breakpoint sensitivity. - Canonical: https://finamodel.com/templates/goodwill-impairment-model - Excel download: https://finamodel.com/templates/goodwill-impairment.xlsx - Category: Corporate Finance - Model type: Valuation - Difficulty: Beginner - Audiences: CFOs & FP&A, Public sector, Controllers, Auditors, FP&A teams, Acquisition teams - Tags: goodwill, impairment-testing, fair-value, asc-350, accounting ## Overview This valuation model tests goodwill and intangible assets for impairment under ASC 350 by comparing DCF-derived fair value to book value annually or quarterly. Build two approaches: DCF (discounted cash flow on unlevered FCFF with WACC haircut) and comparable company multiples (EV/EBITDA, EV/Revenue benchmarks), then reconcile any gap and document the sensitivity to WACC and terminal growth assumptions. The workbook builds a detailed FCFF schedule from operating margins and capex intensity, discounts at the reporting unit's WACC (typically 8–12% for mid-market), tests sensitivities across ±100–200 bps on WACC and ±50–100 bps on terminal growth. Fair value is the average of DCF and multiples; carrying value includes original purchase price plus cumulative amortisation and prior adjustments. Impairment charge = MAX(0, carrying value − fair value), flows through P&L as a non-operating expense. Quarterly tests required if events/circumstances trigger reassessment; annual testing at year-end minimum. Used by CFOs of acquired companies ensuring compliance with GAAP, audit teams documenting fair value assessments, and PE sponsors stress-testing acquisition valuations in down markets. ASC 350 impairment is a mechanical but high-stakes test - material impairment charges can trigger covenant violations and investor complaints. The sensitivity tables (2D: WACC × terminal growth) document the band of reasonable assumptions. Comparable: major acquisitions (Apple-Beats $3B, Microsoft-ZeniMax $7.5B) require robust impairment documentation. ## What's included - Multi-method valuation engine (DCF and market multiples) - Dynamic carrying value reconciliation and headroom calculation - WACC and terminal value sensitivity tables - Toggle between ASC 350 and IAS 36 frameworks - Impairment charge calculation and reporting outputs - Fair value estimation using DCF and income approach - Comparable company and transaction multiples benchmarking - Carrying value reconciliation (original purchase + adjustments) - Sensitivities to WACC, terminal growth, and revenue assumptions - Impairment charge calculation and P&L impact - Quarterly vs. annual testing documentation ## Goodwill Impairment Model: How the Template Works This goodwill impairment model gives accounting and valuation teams a structured way to run annual or trigger-based tests under ASC 350 and IAS 36. It builds enterprise fair value using income and market approaches, compares it to a consistently derived carrying amount, and calculates any write-down. The template is a values-only preview, so you can explore the logic rather than live calculations. ### Operating Drivers and Scenario Flexibility The model starts from a qualitative screen and a five-year reporting-unit P&L. - Revenue growth, working-capital balances, capex and D&A feed the unlevered free cash flow build. - A scenario selector—Base, Downside or Severe Downside—applies flex factors to revenue growth, WACC and market multiples via a CHOOSE function. - Those effective drivers then flow into the DCF and multiples valuations, so switching the scenario restresses the whole test, including headroom and impairment loss. ### From Fair Value to Impairment Loss Fair value is estimated on an enterprise basis in three ways: a DCF using unlevered free cash flow and a Gordon-growth terminal value; a market multiples blend of EV/EBITDA and EV/Revenue; and the simple average of the two. - The carrying side is separately reconciled to an enterprise basis by adding allocated net debt to equity carrying value. - The impairment test compares enterprise fair value with enterprise carrying amount. - Any shortfall is capped at the goodwill balance, producing the impairment loss. ### Outputs, Sensitivities and Post-Impairment View Outputs include the concluded enterprise fair value, headroom percentage, the impairment loss—capped at goodwill—and a breakeven EBITDA-margin-decline measure. - The sensitivity sheet holds structural grids showing enterprise fair value and headroom against WACC versus terminal growth, and against the EV/EBITDA multiple, with conditional formatting flagging impairment-triggering cells. - A post-impairment balance sheet shows the write-down’s effect on goodwill and equity. - WACC breakeven is read from the sensitivity grid rather than a single unreliable cell. ### Practical Use and Model Scope The model is designed for a single reporting unit or CGU, so groups with several units run one instance per unit. - It assumes any long-lived-asset impairment tests have already been cleared, and it does not compute deferred-tax effects of the write-down, Section 382 NOL limitations, or contingent-consideration overlays. - Ten checks validate purchase-price allocation, balance-sheet balancing, terminal-value caps, WACC range, and enterprise-basis consistency. - Because the public download is a values-only preview, formulas do not recalculate; it is intended to illustrate the model’s structure and logic. ## Built for impairment compliance Use this model when you need a documented, defensible approach to annual or trigger-based goodwill impairment testing. ## Integrates income and market approaches A useful impairment model triangulates fair value from DCF and public peer multiples so the conclusion is supportable for auditors. ## Better for identifying breakpoint risk This gives you clear sensitivity tables showing where discount rate, growth, or margin changes would trigger an impairment charge. ## Built for impairment compliance Use this model when you need a documented, defensible approach to annual or trigger-based goodwill impairment testing. ## Integrates income and market approaches A useful impairment model triangulates fair value from DCF and public peer multiples so the conclusion is supportable for auditors. ## Better for identifying breakpoint risk This gives you clear sensitivity tables showing where discount rate, growth, or margin changes would trigger an impairment charge. ## Features - **Dual-approach fair value estimation:** Use DCF (income approach) and peer multiples (market approach) to triangulate fair value and identify range of reasonableness. - **Sensitivity and stress testing:** Model impairment under varying WACC, growth, and margin scenarios to identify risk triggers for accounting implications. - **Regulatory documentation:** Build audit trail and workpapers meeting ASC 350 and auditor expectations for impairment testing methodology and conclusions. ## Use cases - **Year-end accounting process:** Run annual impairment tests for each reporting unit and identify charges required by GAAP before closing financials. - **Acquisition integration:** Test new acquisitions for impairment triggers if synergy assumptions or market conditions change post-close. - **Investor communication:** Quantify impairment charges and explain to analysts and investors using conservative and optimistic scenarios. ## Frequently asked questions ### What is a goodwill impairment model? It is a model that assesses whether the fair value of a reporting unit or cash generating unit exceeds its carrying amount, as required by accounting standards. ### Who uses goodwill impairment models? Corporate finance teams, auditors, valuation professionals, and controllers use them for annual compliance and interim triggering event analysis. ### What should a goodwill impairment model include? It should include DCF and market-based valuation, carrying value reconciliation, corporate asset allocation, and sensitivity analysis for key assumptions. ### Does it support both US GAAP and IFRS? Yes. The model includes toggle logic to switch between the ASC 350 one-step approach and the IAS 36 recoverable amount framework. ### Can it be used after an acquisition? Yes. It helps monitor the ongoing economic health of acquired entities by comparing actual performance against original deal-model projections. ## Related templates - [Comparable Companies Analysis](https://finamodel.com/templates/comparable-company-analysis) - [DCF Model](https://finamodel.com/templates/dcf-model)