Assessing the Value of Growth Option Synergies from Business Combinations and Testing for Goodwill Impairment: A Real Options Perspective

Goodwill is an intangible asset, and therefore hard to measure and difficult to account for. This article argues that the two-stage impairment test for acquired goodwill under SFAS 142 has several limitations. Most important, it measures aggregate rather than acquired goodwill, making it very difficult to separate acquisition-related goodwill from aggregate enterprise goodwill after a business combination. As a consequence, any potential deterioration of acquired goodwill value could be concealed by increases in internally generated goodwill. Copyright Copyright (c) 2009 Morgan Stanley.