"there is no tax savings from an impairment"

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the_tank

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This is quoted from Schweser notes, but I don’t get it. Impraiment will incur write down and book as expense on income statement. Net income will reduce and you will have tax benifit. Isn’t it?
 
Is it an impairment of goodwill or a definite lived intangible? If it’s goodwill, then I would prob agree with you. This is bc goodwill otherwise never sniffs the income statement. A definite lived asset, however, does. I’m wondering if what they mean is that the total tax benefit is unchanged. That is, def lived intangibles are amortized so there is an annual tax benefit associated with that amortization. In the event of impairment, you’re writing more off during that particular year, but the tax benefit is really a matter of timing then an additional benefit/savings as you were planning to amortize eventually. The total potential tax benefit doesn’t change, the timing however does.
That’s my guess without seeing/reading the book.
 
@BMiller, goodwill writedown DOES get impaired and go to the income statement just like any other impairment, unless of course the allowed value has been depleted.
 
I think you’ve misinterpreted my comment. I agreed with the OP that there should be a tax advantage, but wanted to clarify btw an impairment of goodwill vs. long-lived intangibles. Aside from being impaired (which is a nonrecurring cost), goodwill DOES NOT hit the income statement, whereas as other wasting, long-lived intangibles do; they are amortized. As a result, the total tax benefit from the latter does not change, it’s simply a matter of when the benefit occurs…that is, either it comes in the form of a write-down or from the process of being amortized. Goodwill on the otherhand is not amortized. So any writedown causes a tax benefit that otherwise wouldn’t occur. I’m pretty sure when I said, “If it’s goodwill, then I would prob agree with you” makes it clear that I wasn’t suggesting goodwill doesn’t hit the income stmt, like you’re suaying.
Without reading the section the OP was referring to, I was wondering if the text was merely addressing this distinction. Bc he is otherwise correct in his thinking, so i’m not sure why the book would say differently.
 
dude, have you heard of info overload? you don’t need to know this for the exam and you’re wasting time by confusing yourself.
READ THE COMMAND WORD(S) IN EACH LOS AND JUST LEARN WHAT THEY ARE ASKING.
 
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