Estimates for units with goodwill or indefinite-life intangibles

Learning objectives

• Prepare the disclosures about units with significant goodwill or intangible assets with indefinite useful lives: carrying amounts, basis of the recoverable amount, key assumptions, projection period, growth and discount rates, sensitivity.L3, L4
• Identify the disclosures about goodwill not yet allocated and about goodwill allocated across multiple units that are individually not significant.L3

Normative references

• IAS 36The entity is encouraged to disclose the assumptions used to determine the recoverable amount of assets or CGUs during the period; paragraph 134, however, requires disclosures about estimates when the CGU includes goodwill or an intangible asset with an indefinite useful life.
• IAS 36 §133If, in accordance with paragraph 84, a portion of the goodwill acquired in a business combination during the period has not been allocated to a CGU (or group of CGUs) at the end of the reporting period, disclose that amount and the reasons why it remains unallocated.
• IAS 36 §134For each CGU (or group of CGUs) whose carrying amount of goodwill or of intangible assets with indefinite useful lives is significant compared with the entity's total, the entity discloses: the carrying amounts of the goodwill and indefinite-life intangibles allocated; the basis of recoverable amount; if value in use, each key assumption of the projections, management's approach to setting their values (consistency with past experience or external sources, or an explanation of the difference), the projection period (with a justification beyond five years), the growth rate used for extrapolation (with a justification if it exceeds the long-term average) and the discount rate; if fair value less costs of disposal, the valuation technique, the key assumptions and the approach used, the IFRS 13 hierarchy level, any change in technique and, where cash flows are discounted, the period, growth rate and discount rate; finally, if a reasonably possible change in a key assumption would make the carrying amount exceed the recoverable amount: the current excess of recoverable amount over carrying amount, the value assigned to the assumption and the amount by which it would have to change, including the effects on other variables, for the two amounts to be equal.
• IAS 36If goodwill or intangible assets with indefinite useful lives are allocated across multiple CGUs and the amount allocated to each is not significant, disclose that fact and the aggregate amount allocated; if the recoverable amounts of some of those CGUs are based on the same key assumptions and the aggregate amount allocated to them is significant, disclose that fact together with the aggregate amounts, a description of the assumptions, management's approach and, where applicable, a sensitivity analysis.
• IAS 36 §136The detailed calculation carried forward from a preceding period (paragraphs 24 or 99) may be used as the basis for the disclosures in paragraphs 134 and 135.
• IAS 36 §137Refers to Illustrative Example 9 for the disclosures in paragraphs 134 and 135.

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

8 questions

• The Sarrel group has allocated to its Beverages cash-generating unit goodwill that is significant compared with total goodwill. The unit's recoverable amount is its value in use; no loss was recognised in 20X2. Which of the following must be disclosed for this unit?L3
• In November 20X4, Halvren acquired the Pirsa group. At the reporting date of 31 December 20X4, part of the resulting goodwill has not yet been allocated to a cash-generating unit, the initial allocation not being complete (a situation consistent with IAS 36, given). Which of the following must Halvren disclose?L3
• The retail chain Zephan has spread total goodwill of 3,000,000 across 12 regional cash-generating units; the amount allocated to each is not significant compared with total goodwill. For 8 of these units, which together carry 2,200,000 of goodwill, a significant amount, the recoverable amount is based on the same key assumptions (footfall and margin). What information must Zephan disclose?L3
• Lumen has allocated significant goodwill of 900,000 to its Vision cash-generating unit. In the 20X3 test, value in use exceeds the unit's carrying amount by only 4%. Management considers reasonably possible a 1 point increase in the discount rate, which would make the carrying amount exceed the recoverable amount. No loss is recognised. What should be done regarding disclosures?L4
• In 20X2, Brisk determined the recoverable amount of two cash-generating units: Transport, which carries neither goodwill nor an intangible asset with an indefinite useful life, and Media, which carries significant goodwill. What is the position on disclosing the key assumptions used?L3
• For its Cables cash-generating unit, which carries significant goodwill, Quartz carries forward in 20X3 the detailed calculation of recoverable amount made in the previous period, the IAS 36 carry-forward conditions being met (given). The finance director wonders how to prepare the disclosures on this unit's estimates. Which answer is correct?L4
• The Altamar group has allocated to its Cruises cash-generating unit goodwill of 5,000,000 and a brand with an indefinite useful life of 1,500,000, both significant. The recoverable amount is value in use, based on projections over 5 years, a growth rate of 2% beyond that period and a discount rate of 9%. The key assumptions are the occupancy rate and the average price per passenger, set using historical data and industry forecasts. A reasonably possible fall of 3 points in the occupancy rate would give rise to a loss. No loss is recognised. Draft the outline of the note on this unit's estimates.L4
• At 31 December 20X4, the Belcastel group faces three situations: (a) goodwill of 800,000, arising from an acquisition made in December 20X4, has not yet been allocated, the initial allocation not being complete (a situation consistent with IAS 36, given); (b) goodwill of 1,200,000 is spread across 15 branches, each for a non-significant amount, the recoverable amount of 10 of them, which together carry 900,000 considered significant, being based on the same key assumption of revenue growth; (c) the Industry unit carries significant goodwill of 4,000,000. The finance director proposes to publish only a single table of goodwill by unit. Write a judgement memo.L4