ASC 350
Active
Intangibles–Goodwill and Other
Governs intangibles including goodwill impairment testing, indefinite-lived intangibles, finite-lived intangibles amortization, and internal-use software.
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Conceptual Framework Linkage
An asset with no separable, reliably estimable useful life
Goodwill represents future economic benefits from assets not individually identified – it has NO separable, reliably estimable useful life, making systematic AMORTISATION arbitrary. ASC 350 addresses this by testing goodwill for IMPAIRMENT instead, ensuring its carrying amount never exceeds recoverable value, without imposing an artificial amortisation schedule on an asset that genuinely lacks a determinable consumption pattern.
Broadly converged with IFRS, with meaningfully different mechanics
ASC 350's core philosophy – goodwill not amortised, tested for impairment – is FULLY converged with IAS 36/IFRS 3. But the MECHANICS of how that impairment test is actually performed, and how finite-lived intangibles and other long-lived assets are tested, differ in genuinely consequential ways (Sections 4, 9, and 16).
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Scope & Applicability
Goodwill and intangibles other than goodwill
ASC 350 applies to GOODWILL (350-20) recognised in a business combination, GENERAL INTANGIBLE assets other than goodwill (350-30) – both finite-lived and indefinite-lived – and INTERNAL-USE SOFTWARE (350-40), a specific and heavily used category of self-developed intangible asset.
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Goodwill – Not Amortised, Tested for Impairment
The converged core principle
Goodwill is NOT amortised. Instead, it is tested for IMPAIRMENT at least ANNUALLY, and more frequently if events or circumstances indicate it is more likely than not that an impairment has occurred – the SAME fundamental approach IAS 36 requires for goodwill following IFRS 3's business combination accounting.
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Reporting Units – the US GAAP Unit of Account
A genuinely different unit of account than IAS 36's CGU
Goodwill is tested at the REPORTING UNIT level – typically an OPERATING SEGMENT, or ONE LEVEL BELOW an operating segment (a "component"), for which discrete financial information is available and management regularly reviews results. IAS 36, by contrast, tests goodwill at the CASH-GENERATING UNIT (CGU) level – the SMALLEST identifiable group of assets generating cash inflows largely independent of other assets. A reporting unit is typically LARGER and more AGGREGATED than a CGU, meaning the SAME underlying goodwill can be tested at a genuinely different level of granularity under the two frameworks, potentially producing different impairment outcomes for economically identical circumstances.
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The One-Step Goodwill Impairment Test (Post-ASU 2017-04)
Simplified in 2017, moving structurally closer to IAS 36
Before ASU 2017-04, goodwill impairment used a TWO-STEP test: Step 1 compared reporting unit fair value to carrying amount to identify a POTENTIAL impairment; Step 2 required a hypothetical PURCHASE PRICE ALLOCATION to measure the actual impairment amount. ASU 2017-04 ELIMINATED Step 2 – the impairment loss is now simply the excess of the reporting unit's CARRYING AMOUNT over its FAIR VALUE, capped at the total goodwill balance. This is structurally closer to IAS 36's single-step approach, though the BENCHMARK differs: ASC 350 compares against reporting unit FAIR VALUE directly, while IAS 36 compares against RECOVERABLE AMOUNT (the higher of fair value less costs of disposal and value in use) – a subtly different benchmark even after the 2017 simplification.
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The Qualitative "Step 0" Assessment Option
A US-specific practical relief with no direct IAS 36 counterpart
An entity may FIRST perform a QUALITATIVE assessment ("Step 0") of relevant events and circumstances to determine whether it is MORE LIKELY THAN NOT that a reporting unit's fair value is LESS than its carrying amount. If the qualitative assessment concludes it is NOT more likely than not, the entity may BYPASS the quantitative impairment test entirely for that period. IAS 36 has NO equivalent qualitative bypass option – it requires QUANTITATIVE annual testing of goodwill (and indefinite-life intangibles) regardless of qualitative indicators, making this a genuine, practically significant reduction in testing burden available only under US GAAP.
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No Reversal of Goodwill Impairment
Fully converged with IAS 36
Once a goodwill impairment loss is recognised, it is NEVER reversed, even if the reporting unit's fair value subsequently recovers – the SAME absolute prohibition IAS 36 imposes, and the same principle extended to interim periods that IFRIC 10 addresses on the IFRS side (see the IFRIC 10 poster).
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Indefinite-Lived Intangibles Other Than Goodwill
A similarly structured, simplified test
Indefinite-lived intangible assets other than goodwill (e.g. certain trademarks and licences with no foreseeable limit on their useful life) are similarly NOT amortised, and are tested for impairment at least ANNUALLY using a ONE-STEP quantitative comparison of FAIR VALUE to carrying amount, WITH an equivalent qualitative assessment option available – closely paralleling the goodwill test structure, and broadly converged with how IAS 36 treats indefinite-life intangibles other than goodwill.
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Finite-Lived Intangibles – Amortisation and the Two-Step Recoverability Test
A genuinely significant structural divergence from IAS 36
Finite-lived intangibles (and other long-lived assets, such as PP&E) are AMORTISED over their useful lives, and tested for impairment ONLY WHEN INDICATORS exist – using US GAAP's distinctive TWO-STEP model: Step 1 (recoverability test) compares the asset's carrying amount to the sum of its expected future UNDISCOUNTED cash flows; if the carrying amount is LESS than undiscounted cash flows, the asset PASSES and NO impairment is recognised, regardless of fair value. Only if the asset FAILS this recoverability test does Step 2 apply – measuring the impairment loss as the excess of carrying amount over FAIR VALUE. IAS 36, by contrast, uses a SINGLE-STEP test – comparing carrying amount DIRECTLY to recoverable amount (a discounted, present-value-based measure) – with no undiscounted-cash-flow "pass" screen. This means an asset that IS economically impaired on a discounted-cash-flow basis can still PASS the US recoverability screen if undiscounted cash flows exceed carrying amount, potentially DELAYING impairment recognition relative to IFRS for the identical underlying asset.
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Internal-Use Software (350-40)
A three-stage model, echoing SIC-32's philosophy under IFRS
Costs during the PRELIMINARY PROJECT stage (conceptual formulation, evaluating alternatives) are EXPENSED. Costs during the APPLICATION DEVELOPMENT stage (once management has authorised funding and it is probable the project will be completed and used as intended) are CAPITALISED. Costs in the POST-IMPLEMENTATION/OPERATION stage (training, routine maintenance) are generally EXPENSED. This stage-based logic is philosophically very similar to the model underlying SIC-32's website cost treatment under IFRS (discussed earlier in this library), even though the two are codified in completely separate, independently drafted pronouncements.
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Worked Example – Qualitative Assessment Bypassing the Quantitative Test
A favourable qualitative outcome
Example: A reporting unit with a large fair value cushion
A reporting unit's fair value substantially exceeded its carrying amount at the last quantitative test two years ago. Since then, the reporting unit's operating performance has remained stable or improved, and no significant adverse events have occurred.
Management performs a QUALITATIVE assessment considering macroeconomic conditions, industry trends, cost factors, and the reporting unit's own performance, concluding it is NOT more likely than not that fair value is below carrying amount. The entity BYPASSES the quantitative test entirely for the current period – a relief with no equivalent under IAS 36, which would still require a full quantitative recoverable-amount calculation regardless of this favourable qualitative picture.
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Worked Example – One-Step Quantitative Goodwill Impairment
Applying the post-2017 simplified test
Example: A reporting unit with declining fair value
A reporting unit has a carrying amount of $50,000,000 (including $12,000,000 of goodwill) and an estimated fair value of $44,000,000.
Impairment = $50,000,000 − $44,000,000 = $6,000,000, capped at the $12,000,000 goodwill balance – since $6,000,000 is LESS than the goodwill balance, the FULL $6,000,000 is recognised as a goodwill impairment loss. No hypothetical purchase price allocation ("old Step 2") is required – the calculation stops here under the post-2017 simplified model.
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Worked Example – the Two-Step Long-Lived Asset Recoverability Test
A finite-lived intangible passing the undiscounted screen
Example: A customer relationship intangible with declining fair value
A finite-lived customer relationship intangible has a carrying amount of $8,000,000. Expected future UNDISCOUNTED cash flows total $8,600,000. However, the asset's FAIR VALUE (a discounted, present-value basis) is estimated at only $6,500,000.
Step 1 (recoverability): Undiscounted cash flows ($8,600,000) EXCEED carrying amount ($8,000,000) – the asset PASSES the recoverability test, and NO impairment is recognised under US GAAP, despite the $6,500,000 fair value being well below the $8,000,000 carrying amount.
Under IAS 36, by contrast, recoverable amount ($6,500,000, if that represents the higher of fair value less costs of disposal and value in use) would be compared DIRECTLY to carrying amount ($8,000,000) – producing a $1,500,000 impairment loss that US GAAP's undiscounted screen entirely avoids recognising.
Under IAS 36, by contrast, recoverable amount ($6,500,000, if that represents the higher of fair value less costs of disposal and value in use) would be compared DIRECTLY to carrying amount ($8,000,000) – producing a $1,500,000 impairment loss that US GAAP's undiscounted screen entirely avoids recognising.
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Disclosure Requirements
What ASC 350 requires
Changes in the carrying amount of goodwill by reporting unit, including impairment losses recognisedNature, useful life (or indefinite status), and carrying amount of intangible assets by major classEstimated aggregate future amortisation expense for the next five yearsMethod and significant assumptions used in impairment testing, and results of any qualitative assessment
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Critical Judgments & Estimates
Where judgement matters most
SIGNIFICANT JUDGEMENTS
Identifying reporting units and their assigned goodwillWhether a qualitative assessment supports bypassing the quantitative testWhether an intangible asset genuinely has an indefinite useful life
SIGNIFICANT ESTIMATES
Fair value of reporting units and indefinite-life intangiblesUndiscounted and discounted future cash flow projections for finite-lived asset recoverability testingUseful lives of finite-lived intangibles and amortisation patterns
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ASC 350 vs IAS 36/IAS 38 – Comprehensive Comparison
Comparison – ASC 350 vs IAS 36 and IAS 38
FeatureUS GAAP (ASC 350)IFRS (IAS 36/IAS 38)
Goodwill amortisationNever amortised, tested for impairmentSame – fully converged
Unit of account for goodwill testingReporting unit (typically operating segment or one level below)Cash-generating unit (CGU) – typically SMALLER/more granular
Goodwill impairment benchmarkFair value of the reporting unitRecoverable amount (higher of fair value less costs of disposal and value in use)
Qualitative bypass optionAVAILABLE ("Step 0") for goodwill and indefinite-life intangiblesNOT available – quantitative testing required annually regardless
Finite-lived/long-lived asset impairment testTWO-STEP – undiscounted cash flow recoverability screen, then fair value measurementSINGLE-STEP – carrying amount compared directly to recoverable amount
Reversal of impairment (non-goodwill)NOT permitted, once recognisedPERMITTED (except for goodwill), if recoverable amount subsequently increases
The undiscounted-cash-flow recoverability screen for finite-lived and long-lived assets is arguably the single most consequential MECHANICAL difference in this entire comparison – it can genuinely delay impairment recognition under US GAAP relative to IFRS for identical underlying economics, as illustrated in Section 13.
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Statement Mapping
Where every ASC 350 event lands
EventStatement(s) affectedNotes
Goodwill impairment lossBS ISOne-step test, capped at the goodwill balance, never reversed
Indefinite-life intangible impairmentBS ISOne-step test, similar to goodwill, but reversible unlike goodwill
Finite-lived intangible amortisationIS BSSystematic basis over useful life
Finite-lived intangible impairment (two-step test failed)BS ISOnly recognised if the undiscounted recoverability screen is also failed
Internal-use software capitalisation (application development stage)BSAmortised over the software's useful life once in service
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Related Topics
Cross-reference map
TopicConnection
ASC 805Business Combinations – supplies the initial recognition and measurement of goodwill this Topic subsequently tests for impairment
ASC 360Property, Plant, and Equipment – uses the SAME two-step recoverability impairment model as finite-lived intangibles under this Topic
ASC 280Segment Reporting – reporting units are typically derived from operating segments identified under this Topic
Quick-reference glossary preview
Reporting unit
The US GAAP unit of account for goodwill impairment testing, typically an operating segment or one level below.
Recoverability test
The first step of the two-step US GAAP impairment model for finite-lived intangibles/long-lived assets, comparing carrying amount to undiscounted future cash flows.
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Quick-Reference Glossary
Qualitative assessment ("Step 0")
An optional preliminary evaluation of qualitative factors that, if favourable, allows an entity to bypass the quantitative goodwill/indefinite-life intangible impairment test.
Application development stage
The internal-use software development phase during which costs are capitalised, once funding is authorised and completion/use is probable.
Financial statement key
BS Balance sheet
IS Income statement
SE Statement of changes in equity
OCI Other comprehensive income
SCF Statement of cash flows