(RTTNews) - Japanese electronics conglomerate Toshiba Corp. (TOSYY.PK, TOSBF.PK) said Tuesday that it expects to record goodwill impairment charge of several billion dollars related to an acquisition of U.S. nuclear power operations.

The goodwill is related to the purchase of U.S. engineering company CB&I Stone & Webster Inc.'s nuclear construction and integrated services business by Toshiba's U.S. subsidiary, Westinghouse Electric Co. LLC. Westinghouse's acquisition of 100 percent of the shares of CB&I Stone & Webster or S&W from Chicago Bridge & Iron Company N.V. or CB&I closed in December 2015. At that time, Toshiba said the amount of goodwill would be finalized by December 31, 2016, in accordance with U.S. GAAP procedures. But the company had made a preliminary estimate that the goodwill resulting from the transaction will be about $87 million and subject to change.

As the deadline for the finalization of the procedure is nearing, Toshiba said it has found that the goodwill will reach a level of several hundred billion yen, or several billion dollars, resulting in a negative impact on the company's financial results. Westinghouse has been engaged in purchase accounting and studying the actual status based on materials provided by S&W and others after the transaction completion. The company is evaluating the cost to complete the AP1000 contracts to measure the fair value of acquired assets and liabilities.

Westinghouse has found that the cost to complete the U.S. projects will far exceed the original estimate, mainly due to increases in key project parameters, resulting in far lower asset value that originally determined. Thus, goodwill recognized will possibly far exceed the original December 2015 estimate of $87 million, Toshiba noted. Both Toshiba and Westinghouse will initiate impairment testing for the goodwill toward the third-quarter of fiscal 2016 business results. Toshiba will announce its revised forecast for fiscal 2016 after determining the impact of the possible Westinghouse loss on its own financial results. On the Tokyo stock exchange, Toshiba's shares fell 51.50 yen or 11.62 percent to close at 391.60 yen.

Required:

1. Based on this Toshiba case and other reference materials available from the internet, please discuss the possible reasons that goodwill is not amortized like other intangible assets, but is tested for impairment on a periodic basis. (3 marks)

2. Assume that you were a financial analyst. Please explain to your client the reasons that impairment losses lead to lower stock price. (4 marks)

*Hint: Please note that you first need to figure out the factors and financial ratios that are negatively affected by the goodwill impairment losses. After that, you need to further build up a link between those factors and the lower stock price.

3. Assume that you were a financial analyst, and you focus on the e-commerce industry. You recently notice that the goodwill level in Jingdong fluctuates a lot over the last eight years. What are the possible reasons for this fluctuation? As a financial analyst, would you consider this as a positive sign or a negative sign? (7 marks)