| Course | D252 Accounting Research and Critical Thinking |
|---|---|
| Task | Task 2 |
| Paper type | Goodwill impairment research memo |
| Length | About 1,000 words, 2 pages |
| Format | APA 7 |
| School | Western Governors University (WGU) |
| Program | MS Accounting |
| Updated | September 2026 |
Free sample paper for D252 Task 2
Memorandum
To: Chief Financial Officer, Northstar Facility Services Group
From: Manager, Technical Accounting
Date: November 6, 2025
Re: Reporting units and third-quarter goodwill impairment testing
Facts
Northstar Facility Services Group, a publicly traded company, reports three operating segments: Commercial Cleaning, Healthcare Environmental Services and Security Services. Goodwill of $48 million arose from two acquisitions. In 2022, Northstar acquired BrightPath Cleaning, now a component of the Commercial Cleaning segment alongside Northstar's original cleaning business; $29 million of goodwill was assigned to Commercial Cleaning. In 2023, Northstar acquired Sentinel Guard, which forms the Security Services segment; $19 million of goodwill was assigned to it. Healthcare Environmental Services has no goodwill.
Both cleaning components provide office and building cleaning under multiyear contracts, use the same labor model and supplies, serve similar commercial customers in overlapping cities and have gross margins within one percentage point of each other. Segment management reviews them together, although separate financial information exists for each.
In September, Security Services lost its largest customer, a stadium and arena operator responsible for 22% of the segment's revenue, when the contract was rebid. Management has asked whether goodwill must be tested now rather than at the annual test date in December, how the reporting units should be defined, and how the test works today.
Issues
Issue 1: Should the two cleaning components be tested as one reporting unit or two?
Issue 2: Does the loss of the stadium contract require an interim impairment test for Security Services?
Issue 3: How should any impairment be measured under current guidance, and would the answer differ if Northstar were a private company?
Guidance
The controlling guidance is ASC 350-20, Intangibles, Goodwill and Other, Goodwill. A reporting unit is an operating segment or one level below, a component (ASC 350-20-35-33). A component is a reporting unit if it is a business with discrete financial information that segment management regularly reviews, but two or more components of a segment are aggregated into one reporting unit if they have similar economic characteristics (ASC 350-20-35-35). Goodwill is tested at least annually and between annual tests if an event or change in circumstances makes it more likely than not that a reporting unit's fair value is below its carrying amount (ASC 350-20-35-30). An entity may first assess qualitative factors to decide whether the quantitative test is needed (ASC 350-20-35-3A).
Accounting Standards Update 2017-04 simplified the test by removing the second step, which had required measuring the implied fair value of goodwill. Impairment is now the amount by which a reporting unit's carrying amount exceeds its fair value, limited to the goodwill allocated to that unit (Financial Accounting Standards Board [FASB], 2017). For private companies, Accounting Standards Update 2014-02 allows an election to amortize goodwill on a straight-line basis over ten years or less and to test it only when a triggering event occurs (FASB, 2014).
Analysis
Issue 1. Each cleaning component is a business with discrete financial information, so each could be a reporting unit. However, they share similar economic characteristics under ASC 350-20-35-35: the same services, production process, labor model, type of customer and margins. They should therefore be aggregated into a single Commercial Cleaning reporting unit. Northstar will have two reporting units carrying goodwill, Commercial Cleaning and Security Services, and Healthcare Environmental Services will be a third reporting unit with no goodwill. Testing the cleaning components separately would be appropriate only if their economics diverged, for example if BrightPath's margins fell sharply because of different customers.
Issue 2. Losing a customer responsible for 22% of segment revenue is a significant adverse change in the business that directly reduces expected cash flows. At last December's annual test, Security Services' fair value exceeded its carrying amount by only 9%. Under ASC 350-20-35-30, it is more likely than not that fair value is now below carrying amount, so a qualitative assessment would not avoid the quantitative test, and an interim test is required at September 30.
Issue 3. Security Services' carrying amount at September 30, including $19 million of goodwill, is $61 million. Its fair value, estimated with a discounted cash flow model that removes the stadium contract and cross-checked against market multiples of comparable guard services companies, is $50 million. Under the current one-step test, the impairment is $11 million, the excess of carrying amount over fair value, which is less than the $19 million of goodwill, so the full excess is recognized. Northstar does not measure the implied fair value of goodwill, as the old second step required. Commercial Cleaning passed its qualitative assessment: revenue and margins are ahead of forecast, and its fair value exceeded carrying amount by 34% last December.
Private Company Comparison
If Northstar were a private company that had elected the goodwill alternative, it would have amortized goodwill since each acquisition, lowering the carrying amounts, and could have elected to test at the entity level rather than by reporting unit. It would still test after a triggering event such as the lost contract, but the lower carrying amount and entity-level test would make an impairment less likely. As a public company, Northstar cannot elect the alternative.
Why Timing Matters
Delaying the test to December would not change the eventual charge but would misstate the third quarter. Research on goodwill accounting has found that impairments often lag declines in firms' fundamentals and market values, which suggests that some companies recognize losses late (Li & Sloan, 2017). Recording the charge in the quarter in which the triggering event occurred, and documenting why, protects Northstar from that criticism and supports the auditor's review.
Recommendation
Treat Commercial Cleaning as one reporting unit that includes both cleaning components, and document the similar economic characteristics that support aggregation. Perform an interim test of Security Services at September 30 and record a goodwill impairment of $11 million in the third quarter. Disclose the facts and circumstances, the method used to estimate fair value and the amount of the charge. Monitor the remaining $8 million of Security Services goodwill closely, because any further customer losses could trigger another test.
References
Financial Accounting Standards Board. (2014). Intangibles, goodwill and other (Topic 350): Accounting for goodwill (Accounting Standards Update No. 2014-02).
Financial Accounting Standards Board. (2017). Intangibles, goodwill and other (Topic 350): Simplifying the test for goodwill impairment (Accounting Standards Update No. 2017-04).
Li, K. K., & Sloan, R. G. (2017). Has goodwill accounting gone bad? Review of Accounting Studies, 22(2), 964-1003. https://doi.org/10.1007/s11142-017-9401-7
What the D252 Task 2 instructions ask
The second D252 task asks you to research another accounting issue and write a memo. You will usually present facts, issues, guidance, analysis and a recommendation, and may be asked to compare public and private company treatment or explain why timing matters. Evaluators expect the codification cited precisely, judgments such as reporting unit aggregation supported by criteria, calculations that follow the guidance and a recommendation that includes documentation needed. A memo that states a conclusion without walking through the criteria will not meet the analysis aspects. Goodwill issues often turn on judgment, so explaining how you weighed the evidence matters as much as the answer. State each judgment and the evidence behind it.
How this D252 Task 2 example is built
The memo follows the research format used in Task 1. The facts describe the segments, acquisitions and the triggering event. Issues are numbered. The guidance section cites the codification paragraphs for reporting units, aggregation and the impairment test. The analysis applies the aggregation criteria to the cleaning components, then compares the carrying amount of Security Services with its fair value to calculate the charge. A section compares the private company alternative. Another explains why testing when a triggering event occurs matters. The recommendation states the reporting units, the charge and the documentation to support the judgments. Each calculation appears in a small table.
Where the D252 Task 2 rubric puts the marks
D252 Task 2 aspects are scored competent, approaching competence or not evident. Facts, issues, guidance, analysis and recommendation aspects follow the same structure as Task 1. A comparison aspect asks for private company treatment where required. A timing aspect looks for why the period of recognition matters. Evaluators check calculations and codification references, and they notice when judgments are documented with the criteria that support them, since auditors and regulators review exactly that documentation for goodwill. Calculations shown step by step, with fair value sources named, make the charge easy to check. Clear headings for each issue help reviewers find the reasoning. A recommendation that lists the documentation needed shows awareness of how the memo will be used during an audit, which is the professional context the course prepares you for.
D252 Task 2 help: what sends it back
D252 Task 2 memos are weakest when reporting units are chosen without applying aggregation criteria. Walk through each. Calculations may skip the comparison of carrying amount and fair value, so show both. Private company alternatives are sometimes described incorrectly; check the current guidance and its elections. Timing may be ignored, so explain what triggers an interim test. Last, list the documentation the company should keep, since the memo's value lies partly in supporting the accounting during an audit. Describe how fair value was estimated, such as by discounted cash flows or market multiples, since the impairment depends on it. Keep reporting units consistent across the memo. Cite the codification paragraphs in the form your course expects. Explain the difference between public and private company rules clearly if your instructions ask for a comparison.
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D252 Task 2 questions, answered
What is a reporting unit in D252?
An operating segment or one level below it, called a component, at which goodwill is tested for impairment. Components with similar economic characteristics may be aggregated. The choice affects whether an impairment appears.
Is the D252 services group real?
No. Northstar Facility Services Group is invented for the sample. The goodwill guidance in ASC 350-20 applied in the memo is real. Use your course's facts in your own memo, and cite the codification to the paragraph.
Can private companies amortize goodwill in D252?
Yes, private companies may elect an accounting alternative to amortize goodwill, usually over ten years, and test for impairment only when a triggering event occurs. Public companies cannot use this alternative.
What triggers an interim goodwill test in D252?
Events suggesting fair value may have fallen below carrying amount, such as losing a major contract. The sample explains why waiting until December would misstate the third quarter.
Where can I find a free D252 Task 2 sample paper?
The goodwill memo is published above with notes. Share the issue your D252 Task 2 covers, and a first custom research memo is written at no charge.