Financial 4 - Goodwill, including Impairment

Question 1

Goodwill Impairment Calculation

Answer 1

UNDER IFRS

• One Step Test at the Cash Generating Unit level
• CV of the Cash Generating Unit - GCU’s Recoverable Amount

The impairment loss is now then recognized to the extent that the CV of the CGU exceeds the recoverable amount of the CGU Impairment loss. This loss is first allocated to goodwill, then applied to other assets in excess

Question 2

Goodwill Impairment Testing Under GAAP and IFRS

Answer 2

GAAP Evaluation of goodwill Impairment Involves 2 Major Steps

GAAP GW IL calculated at each reporting unit. SEE BELOW

Step 1:

1. Assign assets acquired and liabilities assumed to the various reporting units. Assign goodwill to the reporting units
2. Determine FV of the reporting units
3. If FV is less than CV, there is potential GW Impairment
4. If the FV of reporting unit is more than GW Impairment, no need for step 2

Step 2: Measure the amount of GW Impairment Loss by comparing the the implied FV of the reporting unit’s goodwill with the CV of that GW

1. Allocate the FV of the reporting unit to all assets and liabilities of the unit. Any FV that cannot be assigned is the implied GW of the reporting unit
2. Compare the implied FV goodwill to the CV goodwill. If implied FV of goodwill is less than CV, recognize a GW impairment loss. Once the goodwill is recognized, it CANNOT be reversed.

*Can be reversed under IFRS

IFRS:

Calculating goodwill impairment is analyzed at the cash-generating unit level