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Goodwill Impairment Test

Generally accepted accounting principles require subsequent periodic testing of goodwill acquired in a business combination.

Goodwill impairment tests should be performed on an annual basis and between annual tests if events occur or circumstances change that indicate that the goodwill might be impaired.

Goodwill impairment testing involves use of valuation techniques for valuation of a unit (or units) the goodwill is assigned to and comparing values determined to their carrying amounts.

IFRS refers to recoverable amounts of cash generating units; in US GAAP it would be the fair value of a reporting unit. For such valuation purposes Discounted Cash Flow method is widely used, being a widely accepted and considered to be one of the most appropriate methods of business, operations or project valuation method.

DCF method requires estimating future cash flows, usually based on projections of future income, expenses and other items influencing future cash flows.

Being performed mainly for financial reporting purposes, goodwill impairment tests shall be therefore carried out while complying with the relevant entity's applicable financial reporting framework.

In this regard, we shall keep in mind that different generally accepted accounting principles (IFRS or US GAAP) include slightly different requirements for goodwill accounting, including performance of impairment tests.

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