Impairment test of goodwill: Nedskrivningstest på goodwill

Kragegaard Cecilie

Student thesis: Master thesis


The financial crisis has made it difficult for companies to predict the future and thus make informed budgets and estimate the expected future cash flows and the discount rate. It means that there has been more focus on the definition of key assumptions and the presentation as users of financial statements is in greater need of realistic accounting information. Derived from the above we will examine how to explain the development in goodwill in the period 2008-2014 and how realistic the used key assumptions for the impairment test is. We have chosen to answer these questions based on a series of questions regarding accounting paradigms impact on intangible assets. How do we define goodwill, how goodwill is accounted for, what assumptions is the impairment test of goodwill based on, whether there is a relation between operating profit and goodwill and the consistency between the development in goodwill a macroeconomic cycles. Due to limited space, due to formalities, we have chosen to limit ourselves to three companies selected from some specified requirements. The companies are G4S, Carlsberg and DSV. We have based our analysis and conclusion on these three companies. Through our analysis, we have concluded that there is not a clear connection between macroeconomic cycles and goodwill, though we have shown a tendency for that the trend in real GDP growth and inflation have contributed to the development in goodwill. The assumption used for impairment testing of goodwill seems to be realistic but there are many parameters, which the companies can easily change, so that they can influence the outcome of the impairment test. For this thesis, are the assumptions that immediately stand out, the one-year budget period for DSV and the growth rate for G4S, which was higher than the long-term nominal growth. DSV has no impairment of goodwill in the period analyzed, and neither the sensitivity analysis nor the interim report for H1 2015 shows sign of need for impairment. G4S shows great sensitivity in their sensitivity analysis, and performs impairment of goodwill in the interim report for H1 2015, which may question the assumption, especially if the growth rate has been realistic in the annual report 2014.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2015
Number of pages151