Disposal of an operation and reorganisation

Learning objectives

• Calculate the portion of goodwill included in the gain or loss on disposal of an operation, on the basis of relative values unless a better method exists.L2, L3
• Determine the reallocation of goodwill when the reporting structure of units is reorganised.L3

Normative references

• IAS 36 §86When an operation within a CGU to which goodwill has been allocated is disposed of, the goodwill associated with it is included in the gain or loss on disposal, measured in principle on the basis of relative values, unless another method better reflects the goodwill associated with the operation.
• IAS 36 §87When a reorganisation changes the composition of CGUs, goodwill is reallocated using a similar relative value approach, unless another method is more appropriate.

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

8 questions

• The Valmont group disposes of a cutting workshop that was part of a cash-generating unit (CGU) to which goodwill has been allocated. Which treatment of goodwill is correct in determining the gain or loss on disposal of the workshop?L2
• Brenor disposes of its equipment rental branch, which was part of a CGU to which goodwill of {goodwill_cgu} is allocated. At the disposal date, the value of the branch disposed of is estimated at {value_disposed} and that of the part of the CGU retained at {value_retained}. No other method better reflects the goodwill associated with the branch. Compute the portion of goodwill to include in the carrying amount of the branch disposed of.L2
• The Hestia group sells, for net proceeds of {net_proceeds}, its hospital maintenance division, which was part of the Technical services CGU. The carrying amount of the division's identifiable net assets is {carrying_net_assets}. Goodwill allocated to the CGU is {goodwill_cgu}; the value of the division is estimated at {value_disposed} and that of the operations retained at {value_retained}. No method more relevant than relative values has been demonstrated. Compute the goodwill derecognised with the division and the gain or loss on disposal.L3
• The Orvalis group reorganises its reporting: the spare parts operation, until now part of the Equipment CGU, is transferred to the Services CGU. Goodwill allocated to the Equipment CGU amounts to {goodwill_unit}. The value of the operation transferred is {value_transferred} and that of the part remaining in the Equipment CGU is {value_remaining}. No other method better reflects the goodwill associated with the operation transferred. Compute the goodwill reallocated to the Services CGU and the goodwill remaining in the Equipment CGU.L3
• To monitor its two markets separately, Tramontane splits its Distribution CGU, which carries goodwill of {goodwill_unit}, into two new units. The new East CGU takes over operations with a value of {value_east} and the new West CGU operations with a value of {value_west}. Management has identified no method more relevant than relative values. Compute the goodwill reallocated to each new unit.L3
• Cerdagne disposes of its catering operation, part of a restaurant CGU carrying goodwill of 240,000. Data at the disposal date: operation disposed of, estimated value 200,000 and carrying amount excluding goodwill 150,000; part retained, estimated value 600,000 and carrying amount excluding goodwill 250,000. The management accountant proposes allocating goodwill in proportion to carrying amounts. No other method has been shown to be more relevant. What goodwill must be included in the carrying amount of the operation disposed of?L3
• Pyla reorganises its reporting structure, which changes the composition of two CGUs to which goodwill has been allocated. Which statement correctly describes what happens to that goodwill?L3
• Lorvane sells one of the shops of its regional network; the shop is an operation within the South network CGU, to which goodwill has been allocated. The finance director computes the gain or loss on disposal by comparing the selling price with the carrying amount of the shop's fittings and inventories only. What correction is needed?L2