Testing units with goodwill

Learning objectives

• Explain the annual test, and the test whenever there is an indication, of a unit to which goodwill has been allocated, the timing of the test and the treatment of a unit with no goodwill allocated.L2
• Calculate the impairment loss of a unit to which goodwill has been allocated by comparing its carrying amount, including goodwill, with its recoverable amount.L2, L3, L4

Normative references

• IAS 36 §88When, as described in paragraph 81, goodwill relates to a CGU but has not been allocated to it, the CGU is tested whenever there is an indication by comparing its carrying amount, excluding goodwill, with its recoverable amount; any loss is recognised in accordance with paragraph 104.
• IAS 36 §89If such a CGU includes an intangible asset with an indefinite useful life or not yet available for use that can be tested only as part of the CGU, the CGU is tested annually.
• IAS 36 §90A CGU to which goodwill has been allocated is tested annually and whenever there is an indication, by comparing its carrying amount, including goodwill, with its recoverable amount; any excess of the carrying amount gives rise to a loss allocated in accordance with paragraph 104.
• IAS 36 §96The annual test of a CGU to which goodwill has been allocated may be performed at any time during the annual period, provided it is performed at the same time every year, and different CGUs may be tested at different times; if some of the goodwill of the CGU arose from a business combination during the current annual period, the CGU is tested before the end of that period.
• IAS 36 §99The most recent detailed calculation of the recoverable amount of a CGU to which goodwill has been allocated, made in a preceding period, may be used in the test for the current period if three cumulative conditions are met: the composition (assets and liabilities) has not changed significantly, the recoverable amount exceeded the carrying amount by a substantial margin in that calculation, and, based on the events that have occurred, the likelihood that the current recoverable amount would be less than the carrying amount is remote.

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

12 questions

• How often must a CGU to which goodwill has been allocated be tested for impairment?L2
• Ostrale, whose year ends on 31 December, has several CGUs to which goodwill has been allocated. Select the correct statements about the timing of the annual impairment test.L2
• In its annual test, Fenwood reviews the Packaging CGU, whose assets excluding goodwill have a carrying amount of {carrying_other_assets} and to which goodwill of {goodwill} is allocated. The recoverable amount of the CGU is {recoverable_amount}. Compute the impairment loss of the CGU.L2
• 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
• Following the loss of a major customer (an indication of impairment), Quintal tests its Components CGU, to which goodwill of {goodwill} has been allocated. The unit's other assets have a carrying amount of {carrying_other_assets}. The unit's fair value less costs of disposal is {fvlcd} and its value in use is {value_in_use}. Determine the recoverable amount of the unit and the impairment loss.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
• Goodwill acquired by Linor relates to its Transport CGU, but it could not be allocated to it: it is monitored at the level of a larger group of units. The Transport CGU contains no intangible asset with an indefinite useful life. How is the Transport CGU tested at its own level?L2
• For the annual test of its Logistics CGU, Arbelle wishes to reuse the detailed calculation of recoverable amount made in the previous year. Which of the following situations prevents it from doing so?L2
• Granvelle, whose year ends on 31 December, usually tests its CGUs on 30 June. In September 20X1, it acquires a business and allocates the resulting goodwill, 700,000, to a new Trading CGU. On 30 November 20X1, the assets of the Trading CGU excluding goodwill have a carrying amount of 2,100,000 and its recoverable amount is 2,650,000. What conclusion should be drawn for 20X1?L3
• Dunmore's year ends on 31 December 20X2. Its Laboratories CGU carries goodwill of 400,000; the carrying amount of its other assets is 3,800,000. No indication of impairment was identified during the year and the finance director proposes not to test the unit. The auditor nevertheless obtains a test, performed at the usual date, which shows a recoverable amount of 3,950,000. What conclusion should be drawn?L4
• The Sorel group reviews three CGUs. The Alpha CGU carries goodwill that has been allocated to it. The Beta CGU is related to goodwill that could not be allocated to it and is monitored at the level of a group of units. The Gamma CGU is in the same situation as Beta, but also includes a brand with an indefinite useful life that can be tested only as part of the unit. Select the correct statements.L3