Goodwill impairment reduces which asset on the balance sheet and can lead to negative Net Income?

Goodwill impairment reduces which asset on the balance sheet and can lead to negative Net Income?

• A. Goodwill
• B. Cash
• C. Inventory
• D. Accounts Receivable

Answer: (A)

The key idea is that goodwill impairment is a non-cash write-down of an intangible asset. When the carrying amount of goodwill exceeds its recoverable amount, you record an impairment loss equal to that excess. This reduces the goodwill balance on the balance sheet and, importantly, is recognized as an expense in the income statement, which lowers net income and can even produce a negative net income for the period. Cash isn’t touched by this write-down, and the impairment specifically targets goodwill rather than cash, inventory, or accounts receivable (unless those assets are separately impaired).

The key idea is that goodwill impairment is a non-cash write-down of an intangible asset. When the carrying amount of goodwill exceeds its recoverable amount, you record an impairment loss equal to that excess. This reduces the goodwill balance on the balance sheet and, importantly, is recognized as an expense in the income statement, which lowers net income and can even produce a negative net income for the period. Cash isn’t touched by this write-down, and the impairment specifically targets goodwill rather than cash, inventory, or accounts receivable (unless those assets are separately impaired).