Choice "D" is correct. U.S. GAAP requires that goodwill be tested for impairment at the reporting unit level. The evaluation of goodwill impairment involves two major steps.Step 1: Identify potential impairment by comparing the fair value of each reporting unit with its carrying amount, including goodwill.
Assign assets acquired and liabilities assumed to the various reporting units. Assign goodwill to the reporting units.
Determine the fair values of the reporting units and of the assets and liabilities of those reporting units.
If the fair value of a reporting unit is less than its carrying amount, there is potential goodwill impairment. The impairment is assumed to be due to the reporting unit's goodwill since any impairment in the other assets of the reporting unit will already have been determined and adjusted for (other impairments are evaluated before goodwill).
If the fair value of a reporting unit is more than its carrying amount, there is no goodwill impairment and Step 2 is not necessary.
Step 2: Measure the amount of goodwill impairment loss by comparing the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill.
Allocate the fair value of the reporting unit to all assets and liabilities of the unit. Any fair value that cannot be assigned to specific assets and liabilities is the implied goodwill of the reporting unit.
Compare the implied fair value of the goodwill to the carrying value of the goodwill. If the implied fair value of the goodwill is less than its carrying amount, recognize a goodwill impairment loss. Once the goodwill impairment loss has been fully recognized, it cannot be reversed.
Choices "a", "c", and "b" are incorrect, per the explanation above.
