Intangible assets

CFA Level I
#1

A firm recognizes a goodwill impairment in its most recent financial statement, reducing goodwill from $50 million to $40 million. How should an analyst most appropriately adjust this financial statement for goodwill when calculating financial ratios?

A)

Decrease earnings but make no adjustment to assets.

B)

Make no adjustments to assets or earnings because both reflect the impairment.

C)

Decrease assets and increase earnings. from Kaplan

why is the answer C? Why will ther be an increase in earning?

#2

I believe that the idea is that, economically, the value of the goodwill has likely been decreasing over several years, but you’ve shown that entire decrease on this year’s income statement.