Goodwill Impairment Case Analysis
Galaxy Sports Inc. is a publicly traded company based in the U.S, which manufactures sports equipment. Considering it is a public company, Galaxy is bound by the rules and regulations of the SEC in regards to its accounting and reporting standards. The SEC’s tight supervision of companies is important because the performance of a public company not only affects its owners and employees, but its shareholders, institutional investors, and other stakeholders as well. For this reason, companies are required to issue a 10-K reporting their financial progress in an honest manner that is consistent with the FASB accounting principles.
Galaxy’s business is comprised of three distinct segments, its Fitness Equipment, Golf Equipment, and Hockey Equipment; each of which requires their own separate reporting. Although many companies with multiple sources of revenue report as one unit, Galaxy does not because of the discrete nature of financial information for each separate segment. For this reason, each component is managed separately. As is stated in the FASB Codification, “A component of an operating segment is a reporting unit if the component constitutes a business or a nonprofit activity for which discrete financial information is available and segment management, as that term is defined in paragraph 280-10-50-7, regularly reviews the operating results of that component” (350-20-35-34). “However, two or more components of an operating segment shall be aggregated and deemed a single reporting unit if the components have similar economic characteristics,” (350-20-35-35). Over the years, Galaxy has made various acquisitions over all segments of their business. These acquisitions resulted in a total of $360 million of goodwill as of December 2011, $200 million attributed to the Fitness Equipment, $130 million attributed to Golf equipment, and $30 million attributed to the Hockey Equipment. In previous years, management had performed the annual goodwill impairment
Galaxy’s business is comprised of three distinct segments, its Fitness Equipment, Golf Equipment, and Hockey Equipment; each of which requires their own separate reporting. Although many companies with multiple sources of revenue report as one unit, Galaxy does not because of the discrete nature of financial information for each separate segment. For this reason, each component is managed separately. As is stated in the FASB Codification, “A component of an operating segment is a reporting unit if the component constitutes a business or a nonprofit activity for which discrete financial information is available and segment management, as that term is defined in paragraph 280-10-50-7, regularly reviews the operating results of that component” (350-20-35-34). “However, two or more components of an operating segment shall be aggregated and deemed a single reporting unit if the components have similar economic characteristics,” (350-20-35-35). Over the years, Galaxy has made various acquisitions over all segments of their business. These acquisitions resulted in a total of $360 million of goodwill as of December 2011, $200 million attributed to the Fitness Equipment, $130 million attributed to Golf equipment, and $30 million attributed to the Hockey Equipment. In previous years, management had performed the annual goodwill impairment