SPLASH BEVERAGE GROUP, INC. Goodwill & Intangibles Disclosure
Note 17 – Goodwill
In accordance with ASC 350, Intangibles—Goodwill and Other, we test goodwill for impairment for each reporting unit on an annual basis, or when events or circumstances indicate the fair value of a reporting unit is below its carrying value.
Our goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired in business combinations. The goodwill generated from the business combinations is primarily related to the value placed on the employee workforce and expected synergies. Judgment is involved in determining if an indicator or change in circumstances relating to impairment has occurred. Such changes may include, among others, a significant decline in expected future cash flows, a significant adverse change in the business climate, and unforeseen competition.
We have the option of performing a qualitative assessment of impairment to determine whether any further quantitative testing for impairment is necessary. The option of whether or not to perform a qualitative assessment is made annually and may vary by reporting unit. Factors we consider in the qualitative assessment include general macroeconomic conditions, industry and market conditions, cost factors, overall financial performance of our reporting units, events or changes affecting the composition or carrying amount of the net assets of its reporting units, sustained decrease in its share price, and other relevant entity specific events. If the management determines on the basis of qualitative factors that the fair value of the reporting unit is more likely than not less than the carrying value, then we perform a quantitative test for that reporting unit. The fair value of each reporting unit is compared to the reporting unit’s carrying value, including goodwill. Subsequent to the adoption on January 1, 2017 of Accounting Standards Update (“ASU”) No. 2017-04, Intangibles—Goodwill and Other: Simplifying the Test for Goodwill Impairment, if the fair value of a reporting unit is less than its carrying value, we recognize an impairment equal to the excess carrying value, not to exceed the total amount of goodwill allocated to that reporting unit.
At December 31, 2020, our management determined that an impairment charge of approximately $9.5 million, was necessary to reduce the goodwill relating to our Medical Device Segment The impairment charge was primarily related to the net cash flow projection of that business unit.
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About Goodwill & Intangibles Disclosures
Goodwill and intangible asset disclosures reveal the premium paid in acquisitions and how management assesses whether that premium retains its value. Since goodwill is no longer amortized under US GAAP, the annual impairment test is the only mechanism that adjusts carrying values downward — making the assumptions behind that test critically important for investors.
Key signals: a history of goodwill impairments suggests management consistently overpays for acquisitions. Watch the gap between reporting unit fair value and carrying amount — when fair value exceeds carrying amount by less than 10-20%, a small decline in business performance could trigger a write-down. For finite-lived intangibles, examine useful life assumptions across customer relationships, technology, and trade names; aggressive estimates inflate near-term earnings. Compare total intangibles-to-total-assets ratios against peers to assess acquisition dependency. Rising goodwill as a percentage of equity can signal balance sheet fragility.