Introduction
Microsoft is a technology corporation that specializes in personal and business-use hardware and software. A business of this scale usually incorporates purchasing new assets, which may change the value over time. If a company acquires a new property for a sum bigger than its book value and this property decreases in cost afterward, the difference is called goodwill impairment.
Identification of the 2015 Goodwill Impairment Segment
A good example of goodwill impairment documentation is Microsoft’s 2015 report, which features a phone hardware company purchase being less profitable than expected. The 2015 case of phone hardware impairment involves several important protocol details. This business segment’s revenue model included hardware purchases as a primary income source, with maintenance services being an additional one.
An underlying issue was not meeting the expectations of sales volumes and revenue goals, along with increased sector competitiveness, which led to a decision to claim the property impaired. Thus, this incident was documented in the income statement under the “impairment, integration, and restructuring” section, which had substantially higher costs than in 2014 (Microsoft, 2015). The cash flow statement featured these costs in the “goodwill and asset impairments” graph, which accounted for 7,498 million compared to zero in 2014 (Microsoft, 2015).
Goodwill Impairment Testing Process
To test the goodwill impairment, the corporation compared the set goals to actual revenue, evaluated the market conditions that may have affected the sector’s success, and restructured the plan with these adjustments. Then, a forecast of a reduction in the asset volume growth rate was performed, indicating the impairment of the unit. Therefore, the phone hardware purchase and later management were unsuccessful.
Conclusion
In conclusion, it is essential to evaluate a business at all stages of development correctly. A possible change in the book value might provide good insight into the asset’s later profits. Properly managing acquired units is also crucial for the asset to retain its value in the future. If a property fails to be profitable, this needs to be accurately documented and analyzed for use in other deals.
Reference
Microsoft. (2015). Earnings Release FY15 Q4 Microsoft cloud and hardware results drives fourth quarter performance. Web.