What happens to the recorded value of goodwill if the anticipated synergies from an acquisition are not realized?

When the anticipated synergies from an acquisition are not realized, the recorded value of goodwill is subject to impairment testing. Goodwill represents the excess amount paid over the net identifiable assets of the acquired company, fundamentally reflecting the expected future economic benefits from the acquisition. If it becomes evident that these expected synergies are not achievable or seem less likely to be realized than previously anticipated, it suggests that the value of the goodwill may not be recoverable.

In this situation, a company would assess the goodwill for impairment. If it is determined that the carrying amount of goodwill exceeds its fair value, then the goodwill must be adjusted downward to reflect this impairment. This is an important aspect of accounting, as it ensures that the financial statements do not overstate the value of the company's assets based on unrealistic expectations regarding future performance. Regular impairment testing thus protects investors and stakeholders by providing a more accurate picture of a company's financial health post-acquisition.

The other options do not accurately reflect accounting practices related to goodwill assessment and impairment. Goodwill cannot be simply retained without evaluation, nor can it be increased without a legitimate basis. Additionally, goodwill is not treated as a contingent liability, which pertains to potential obligations that could arise from specific future events, and does not apply in this