Therefore, to stop this issue from emerging again goodwill tests were created to be conducted in order to affirm the genuineness of company’s balance sheets. It was suggested that the goodwill impairment tests must be conducted annually based on proper methodologies specified by accounting standards. If a company gains prosperity rapidly, it is considered as a healthy thing but the source of this prosperity creates skepticism about the company’s gains. If a company is gaining prosperity through intangible assets then, it is said that the country might be in danger of losing its assets. Increase in the goodwill asset ratio suggests a company’s rapid aggressive acquisition of other firms because of its tangible assets value is in danger or has already gone down whereas, decrease in the goodwill asset ratio suggest that company has written down some goodwill or there has been a recorded increase in the company’s tangible asset (KPMG, 2014).
The competition among the firms depends majorly upon the goodwill because through comparing goodwill of other companies the investors decide where to invest their money and also, they have an idea of how the company is managing its goodwill (PWC, 2015).
Duet Group deals with an increasing goodwill asset ratio but has also devised policies for the impairment of goodwill in order to avoid putting the company at risk (KPMG, 2014).
The efficacy of goodwill impairment test is however, debated on certain levels in the business however, it cannot be denied that goodwill impairment is helpful or relevant in assessing how well an investment has performed. While conducting an interview regarding the efficacy of goodwill impairment test it was seen that most of the analysts concluded that goodwill impairment test do not affect the markets view of value. It was also said that goodwill impairment test proves to be less effective in terms of their lack of acknowledgement on the market level. The analysts moreover elaborates that it the goodwill impairment test requires great number of judgment and assumptions which makes it a complex and time consuming activity (DUET Group, 2014)