[Anonymous]

Hi guys!

On F2-22 of Becker, the IFRS rule for an impairment loss of an intangible asset other than goodwill is calculated as comparing the intangible asset’s carrying value to the recoverable amount. IFRS defines the recoverable amount as the greater of the asset’s fair value less costs to sell and the asset’s value in use.

Now take a look at this Becker MCQ question:

On December 31, an entity tested its goodwill for impairment and determined the following for one of its cash-generating units:

Carrying value $ 2,425,000

Fair value 2,600,000

The entity estimated that if it were to sell the cash generating unit, it would incur costs of $250,000. The entity also determined that the present value of the future cash flows expected from the cash generating unit is $2,400,000. The cash generating unit reports goodwill of $65,000. What is the goodwill impairment loss that will be reported on the December 31 income statement under IFRS?

The correct answer is $25,000 and the explanation according to Becker is

Under IFRS, the goodwill impairment test is a one-step test in which the carrying value of a cash-generating unit (CGU) is compared to the CGU’s recoverable amount, which is the greater of the CGU’s fair value less costs to sell and its value in use (PV of future cash flows expected from the CGU). For this CGU, the value in use of $2,400,000 is the recoverable amount because it exceeds the fair value less costs to sell of $2,350,000 ($2,600,000 fair value – $250,000 costs to sell) and the impairment loss is:

Impairment loss = Recoverable amount – Carrying value

Impairment loss = $2,400,000 – $2,425,000 = $(25,000)

However on page F2-22, I thought this rule is only used for intangible assets other than goodwill……but the rule is used here for goodwill.

Thanks for your help! 🙂

[barelystayingsane]

If you check out the bottom of page F2-81 and the top of page F2-82, you'll see it's basically the same formula (just sub in CGU for asset when calculating goodwill impairment). I think the reason they said it's for intangible assets other than goodwill is because you're looking at the actual asset (patent, copyright, etc.) rather than the cash-generating unit for goodwill. They're just splitting them up because of the wording, but the treatment is really basically the same thing.

[SeattleAccountant]

Goodwill impairment under IFRS is also one-step process which compares carrying value vs. recoverable amount, see page F2-25 and it is basically follows the same impairment analysis as for indefinite life assets other than goodwill, see page F2-22.

The only notable difference is the level at which analysis takes place. For goodwill it is at the cash-generating unit vs. for assets other than goodwill, it is at the specific asset level.

Don't sweat this, seriously!

Becker Class of Jan - Aug 2013: FARB DONE!!!!
CPA license pending 🙂

[Author]

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