MSFT · 10-Q · 2026Q1 · Full report

Goodwill Impairment Testing

MICROSOFT CORP · 2026-04-29 · Importance 10 · Surprise 6

Microsoft allocates goodwill to reporting units and tests goodwill for impairment annually (May 1) or more frequently if events or changes in circumstances suggest possible impairment. The company uses discounted cash flow (DCF) methodologies to estimate reporting unit fair value, requiring judgments about future cash flows, long‑term growth rates, useful lives, and the weighted average cost of capital (WACC). Events that could trigger impairment include significant changes in business climate, operating performance indicators, competition, or disposition of a reporting unit. Changes in those estimates and assumptions could materially affect the assessment of fair value and any goodwill impairment.

Key facts

• Goodwill is tested for impairment at the reporting unit level on an annual basis (May 1) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. source
• The fair value of each reporting unit is estimated primarily through the use of a discounted cash flow methodology. source
• The discounted cash flow analysis requires estimation of future cash flows, long-term rate of growth, useful life over which cash flows will occur, and determination of our weighted average cost of capital. source
• The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results, market conditions, and other factors. source
• These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit. source
• We allocate goodwill to reporting units based on the reporting unit expected to benefit from the business combination and, if necessary, reassign goodwill using a relative fair value allocation approach. source