Should management have performed an interim goodwill impairment test as of September 30, 2010?
Galaxy Sports Inc. (Galaxy) is a U.S. based manufacturer of sports equipment. It is an SEC registrant with one operating segment with three separate reporting units: fitness, golf and hockey. The fitness is the largest division of Galaxy with allocated goodwill of $200 million. The golf division reports $130 million of goodwill and the hockey has $30 million of goodwill. Each division has been a reporting unit for a number of years. Due to the complexities involved with the calculation of goodwill and resource restraints in 2009, Galaxy decided to hire Big Time LLC (Big Time) to perform three annual ASC …show more content…
Examples of such events or circumstances include a significant adverse change in legal factors, the business climate, and unanticipated competition.
Harris interactive had a significant change in business climate due to a poor economy which led to dramatic stock price decline. In a similar manner, Galaxy had a steady stock price and earnings decline in the first 3 quarters of 2010 and were dealing with a slumping economy. This was further affected by competitors in China who were able to distribute similar products at a large discount appealing to consumers in a price sensitive economy. An interim test should have been provided based on the evidence cited. Assume no interim test is required for Galaxy, was management justified in carrying forward the prior-year goodwill impairment test for the Fitness Equipment and Hockey Equipment reporting units? There are a few reasons why Galaxy Sports should not be required to do an interim goodwill impairment test as of September 30, 2010. The high sales of last year and the forecasted