Case 11-9

In: Business and Management

Submitted By bos108
Words 491
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Case 11-9

Yes management should have performed an interim goodwill step 1 impairment test as of September 30, 2012. The FASB Accounting Standards Codification detailed when an impairment test for goodwill is needed based on various circumstances. To determine whether a two-step test is necessary a qualitative assessment must be completed first. One of the most important pieces of information of Galaxy Sports Inc. at the September 30, 2012 date was the current market environment. Galaxy had experienced a slump in sales and was losing revenue to cheaper foreign competitors because the economy was slower. In ASC 350-20-35-3c there were several factors listed that should have led Galaxy to test for goodwill impairment. They included “Macroeconomic conditions such as a deterioration in general economic conditions, limitations on accessing capital, fluctuations in foreign exchange rates, or other developments in equity and credit markets”, “Industry and market considerations such as a deterioration in the environment in which an entity operates, an increased competitive environment, a decline in market-dependent multiples or metrics (consider in both absolute terms and relative to peers), a change in the market for an entity’s products or services, or a regulatory or political development”, “Overall financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods
“ and “If applicable, a sustained decrease in share price”. Galaxy had predicted revenue for the third quarter to be much higher than what actually occurred. On December 31, 2011, Galaxy had common share price of $56.75. Since then the stock price has plummeted to $31.50 after the 2012 third quarter earnings release. The qualitative assessment determined that there were significant events…...

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