01 March 2012

Impairment of goodwill and CGUs

In order to be awarded CPD units you must answer the following five random questions correctly. If you fail the test, please re-read the article before attempting the questions again.

  1. The basic principle of impairment is that an asset may not be carried on the statement of financial position above its recoverable amount. What is the definition of `recoverable amount`?

  2. All assets subject to the impairment review are tested for impairment where there is an indication that the asset may be impaired although certain assets are tested for impairment annually. Which of the following assets are tested for impairment annually even if there is no impairment indicator?

  3. A cash generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Goodwill acquired in a business combination is allocated to the acquirer`s CGUs that are expected to benefit from the business combination. What is the largest group of CGUs permitted for goodwill impairment testing purposes?

  4. How should an impairment charge calculated for a CGU be allocated to the CGU`s individual assets?

  5. When allocating the impairment loss to a CGU, the carrying amount of each asset within the CGU should not be reduced below the highest of:

  6. Under IFRS 3 Business Combinations, requirements have been introduced whereby entities can choose alternative methods of calculating goodwill. Which methods of calculating non controlling interest(NCI) are allowed under IFRS 3?

  7. An entity acquired 70% of a subsidiary which is a CGU. At the year-end, the carrying amount of the subsidiary`s identifiable net assets is GBP 40 million; the recoverable amount of the CGU is GBP 61 million. Goodwill is GBP 21 million using the partial goodwill method. Calculate any impairment loss arising

  8. An entity acquired 70% of a subsidiary which is a CGU. At the year-end, the carrying amount of the subsidiary`s identifiable net assets is GBP 40 million; the recoverable amount of the CGU is GBP 61 million. Goodwill is GBP 28 million using the full goodwill method. Calculate any impairment loss arising.

  9. A acquired 75% of the equity of subsidiary (B). B became part of a larger CGU that includes another subsidiary (C) which is 100% owned by A. Goodwill of GBP 20 million arose on the acquisition of B and GBP 30 million on the acquisition of C. The carrying amount of the identifiable net assets of the combined CGU (B plus C) is GBP 80 million and the recoverable amount of the combined CGU is GBP 120 million. Using the full goodwill method, what would be the impairment loss suffered by the combined CGU?

  10. A acquired 75% of the equity of subsidiary (B). B became part of a larger CGU that includes another subsidiary (C) which is 100% owned by A. Goodwill of GBP 20 million arose on the acquisition of B and GBP 30 million on the acquisition of C. The carrying amount of the identifiable net assets of the combined CGU (B plus C) is GBP 80 million and the recoverable amount of the combined CGU is GBP 120 million. How will any impairment loss be dealt with in the group financial statements in relation to subsidiary B?

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