Allocating an impairment loss within a unit

Learning objectives

• Calculate the allocation of a unit's impairment loss: first to the goodwill allocated, then to the other assets pro rata on the basis of their carrying amounts.L2, L3
• Calculate the allocation while respecting each asset's floor (the highest of its fair value less costs of disposal, its value in use and zero) and the reallocation of the remainder.L3, L4
• Recognise the loss allocated between goodwill and the assets of the unit.L2, L3

Normative references

• IAS 36 §104An impairment loss is recognised for a CGU (or the smallest group of CGUs to which goodwill or a corporate asset has been allocated) if, and only if, its recoverable amount is less than its carrying amount; it is allocated first to the goodwill allocated, then to the other assets pro rata on the basis of their carrying amounts, these reductions being treated as impairment losses on individual assets (paragraph 60).
• IAS 36 §105In allocating the loss, the carrying amount of an asset is not reduced below the highest of its fair value less costs of disposal (if measurable), its value in use (if determinable) and zero; the remainder is allocated pro rata to the other assets.
• IAS 36 §106If the recoverable amount of each asset cannot be estimated, the allocation between assets other than goodwill is necessarily arbitrary, because they work together.
• IAS 36 §108After the allocation, a liability is recognised for any remaining loss only if required by another Standard.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

26 questions

• The Pierrelune quarry forms a CGU. Its assets have a carrying amount of {assets_carrying_amount}, and a provision for site restoration is recognised for {restoration_provision}. Any buyer of the quarry would have to assume this obligation: the fair value less costs of disposal of the whole, obligation included, is estimated at {fvlcd_with_liability}. Value in use, calculated without considering restoration outflows, is {viu_before_restoration}. Determine the carrying amount to be compared, the recoverable amount and the impairment loss.L3
• Nordmaris operates an offshore gas platform, which is a CGU whose assets have a carrying amount of {platform_assets}. It has recognised a decommissioning provision of {decommissioning_provision}, an obligation that a buyer of the platform would have to assume. The price a buyer would pay for the platform and this obligation, less costs of disposal, is estimated at {fvlcd_buyer_assumes}. Value in use projections, prepared excluding decommissioning outflows, give {viu_excluding_decommissioning}. What are the carrying amount to be used for the test, the recoverable amount and any impairment loss?L3
• The private operator Ecodepots runs a waste landfill site, which is a CGU. The carrying amount of the facilities is {landfill_assets}. A provision for closure and rehabilitation of the site is recognised for {site_closure_provision}; a sale of the site would transfer this obligation to the purchaser. A purchaser would pay, for the site and the obligation, a fair value less costs of disposal of {fvlcd_including_obligation}. Value in use calculated before any closure outflows amounts to {viu_gross}. Calculate the carrying amount to be compared, the recoverable amount and the impairment loss.L3
• For practical reasons, Distrimax determined the recoverable amount of its West Warehouse CGU by including the warehouse's trade receivables ({trade_receivables}) and trade payables ({trade_payables}). The recoverable amount thus obtained is {ra_incl_working_capital}. The CGU's assets, excluding receivables, have a carrying amount of {cgu_assets}. Determine the adjusted carrying amount of the CGU and the impairment loss.L3
• The Verdalia garden centre chain is testing its Montclair store, which is a CGU. For simplicity, the finance department calculated the store's recoverable amount, {recoverable_amount_computed}, by including trade customer accounts ({customer_receivables}) and debts owed to nurseries ({supplier_payables}). The store's other assets have a carrying amount of {store_assets}. What is the adjusted carrying amount of the store, and what impairment loss must be recognised?L3
• The kaolin mine of Kaolys forms a CGU. Its assets have a carrying amount of 3,000,000; a restoration provision of 700,000 is recognised, and any buyer would have to assume it. The mine's fair value less costs of disposal, obligation included, is 2,500,000; value in use excluding restoration outflows is 2,600,000. The controller compares 2,500,000 with 3,000,000 and proposes an impairment loss of 500,000. Which conclusion is correct?L3
• The Kerlann hotel group tests its Coast CGU, made up of three hotels. The unit's assets, excluding goodwill, have a carrying amount of {carrying_other_assets}; the goodwill allocated amounts to {goodwill}. The recoverable amount of the unit is estimated at {recoverable_amount}. No individual floor limits the reduction of the assets (given). Compute the impairment loss and its allocation between goodwill and the other assets.L3
• In the annual test of its Rolling CGU, Marquise has the following carrying amounts: goodwill {goodwill}, production plant {plant}, factory building {building}. The recoverable amount of the unit is {recoverable_amount}. No individual floor limits the reduction of the assets (given). Compute the impairment loss, then the carrying amounts of the plant and of the building after the test.L4
• A competitor launches a cheaper offer and Sirocco, a video game publisher, identifies an indication of impairment on its Studio CGU. Carrying amounts: goodwill {goodwill}, computer equipment {equipment}, software licences (intangible assets) {licences}. The recoverable amount of the unit is {recoverable_amount}. No individual floor is binding (given). Compute the impairment loss and the carrying amounts of the equipment and of the licences after allocation.L4
• Morvenne identifies an indication of impairment on a press in its Foundry CGU. The press has a carrying amount of 500,000 and an individual recoverable amount of 380,000. The CGU also includes other assets of 2,000,000 and goodwill of 300,000; its recoverable amount is 2,600,000. What impairment losses must be recognised?L4
• Fontcaude has two CGUs, M and N, which use a research centre with a carrying amount of {research_centre}. No reasonable and consistent basis allows a portion of the centre to be allocated to each unit, but it can be allocated to the group formed by M and N. Test data: M, carrying amount {carrying_m} and recoverable amount {recoverable_m}; N, carrying amount {carrying_n} and recoverable amount {recoverable_n}; recoverable amount of the group M + N: {group_recoverable}. Compute the loss of CGU N, then the additional loss identified at group level.L4
• Varenne Industrie recognises an impairment loss on a cash-generating unit (CGU) to which goodwill has been allocated. How should this loss be allocated among the assets of the unit?L2
• When allocating the impairment loss of a CGU of Brévent Logistique, the pro rata share would reduce a warehouse below its fair value less costs of disposal, which is measurable. What does IAS 36 require?L3
• The Harbour Cannery CGU of Halvard Foods comprises goodwill of {goodwill_ca}, a building with a carrying amount of {building_ca} and machinery with a carrying amount of {machinery_ca}. Its recoverable amount is estimated at {recoverable_amount}. No individual floor is binding. Calculate the loss allocated to goodwill, to the building and to the machinery.L2
• A store of the Maison Ardent chain is a CGU. It carries goodwill of {goodwill_ca}, fit-out of {fit_out_ca}, equipment of {equipment_ca} and checkout software of {software_ca} (carrying amounts). After a competitor opens nearby, the recoverable amount of the store falls to {recoverable_amount}. No individual floor is binding. Determine the loss allocated to the fit-out and the carrying amount of the equipment after the allocation.L3
• The Saint-Aubin Plant CGU of Corvel Métal comprises: goodwill {goodwill_ca}, production plant {plant_ca} (fair value less costs of disposal: {plant_fvlcd}), vehicles {vehicles_ca} and furniture {furniture_ca} (carrying amounts). The recoverable amount of the unit is {recoverable_amount}. The value in use of the plant cannot be determined; for the vehicles and the furniture, neither fair value less costs of disposal nor value in use can be determined. Calculate the loss allocated to the plant, to the vehicles and to the furniture.L3
• A mountain hotel operated by Altissimo Resorts forms a CGU. After two seasons without snow, its recoverable amount is estimated at {recoverable_amount}. Carrying amounts: goodwill {goodwill_ca}, building {building_ca}, furniture {furniture_ca} and IT system {it_ca}. A firm purchase offer makes it possible to establish the building's fair value less costs of disposal at {building_fvlcd}; no floor other than zero can be determined for the furniture and the IT system. Calculate the final loss allocated to the building, to the furniture and to the IT system.L4
• The online travel agency Ventolia is a CGU carrying goodwill of {goodwill_ca} and other assets with a total carrying amount of {other_assets_ca}. Its recoverable amount is {recoverable_amount}. Calculate the carrying amount of goodwill after impairment and the loss allocated to the other assets.L2
• Brisach Imprimerie tests its Offset Printing CGU, which comprises goodwill of {goodwill_ca}, printing equipment of {equipment_ca} and a building of {building_ca} (carrying amounts). The recoverable amount of the unit is {recoverable_amount}. No individual floor is binding and all assets are measured at cost. Record the impairment entry.L2
• The restaurant Le Comptoir Sabline, acquired by a restaurant group, is a CGU to which goodwill of {goodwill_ca} is allocated. It also comprises kitchen equipment ({kitchen_ca}) and dining-room improvements ({improvements_ca}), measured at cost. The closure of a nearby office district reduces its recoverable amount to {recoverable_amount}. No individual floor is binding. Record the impairment loss.L3
• The logistics hub of Ostrava Distribution is a CGU comprising goodwill of {goodwill_ca}, a warehouse of {warehouse_ca} and forklift trucks of {forklifts_ca} (carrying amounts, cost model). The recoverable amount of the unit is {recoverable_amount}. The warehouse's fair value less costs of disposal is {warehouse_fvlcd}; no floor other than zero can be determined for the forklifts. Record the unit's impairment loss.L4
• Quillan Énergies has allocated the loss of its Hydro Plant CGU: goodwill is reduced to zero and every other asset is already at its floor (the highest of its fair value less costs of disposal, its value in use and zero). A remaining loss of 30,000 is still unallocated. No other standard requires a liability to be recognised for it. What should the entity do?L4
• The Valbonne Spa CGU of Aquaval includes a building measured under the revaluation model, with a revaluation surplus of 40,000. The allocation of the unit's impairment loss assigns a share of 25,000 to the building. How is this share treated?L3
• The Foundry Workshop CGU of Malbrun, with no goodwill, comprises a furnace with a carrying amount of 100,000 and other assets of 300,000. Its recoverable amount is 320,000. The furnace is damaged: its value in use cannot be estimated individually and its fair value less costs of disposal is 70,000. No other asset has a binding floor. What impairment loss should be recognised on the furnace?L4
• The Cutting Line CGU of Pellerin Bois, with no goodwill, comprises an industrial saw with a carrying amount of 80,000 and other assets of 120,000. Its recoverable amount is 100,000. The value in use of the saw cannot be estimated individually; its fair value less costs of disposal is 55,000. The other assets have no binding floor. What is the carrying amount of the saw after impairment?L4
• Why does IAS 36 describe as arbitrary the allocation of a CGU's loss among its assets other than goodwill, when the recoverable amount of each of them cannot be estimated?L3