No reversal of goodwill impairment

Learning objectives

• Explain the prohibition on reversing an impairment loss for goodwill and its rationale (internally generated goodwill).L1, L2

Normative references

• IAS 36 §124An impairment loss recognised for goodwill is never reversed.
• IAS 36Justifies the prohibition by the fact that a subsequent increase in the recoverable amount of goodwill is likely to be an increase in internally generated goodwill, the recognition of which is prohibited by IAS 38.

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

12 questions

• True or false? An impairment loss recognised for goodwill can never be reversed.L1
• True or false? When the recoverable amount of a cash-generating unit returns to its pre-impairment level, the loss previously allocated to its goodwill is reversed.L1
• True or false? If the goodwill impairment loss was caused by a specific external event, such as a competitor entering the market, and that event disappears, the entity may reverse the goodwill loss.L2
• True or false? The prohibition on reversing a goodwill impairment loss is explained in particular by the fact that a later increase in its recoverable amount would probably reflect internally generated goodwill.L2
• True or false? When a cash-generating unit carries impaired goodwill, the prohibition on reversal extends to all the unit's assets, none of which can then be subject to any reversal.L2
• Which statement about reversing an impairment loss for goodwill is correct?L1
• Why does IAS 36 prohibit reversing an impairment loss recognised for goodwill?L2
• In 20X1, Ternac impaired the goodwill of its Nutrition cash-generating unit by 100,000. In 20X2, the unit's recoverable amount increases by 60,000 thanks to the success of a new product range. What is the effect of this increase on goodwill?L2
• The accountant at Brevalis handles the Optics cash-generating unit, whose goodwill had been impaired by 50,000 in 20X1, as follows: (1) in 20X3, he notes indications of an increase in value; (2) he computes the unit's new recoverable amount; (3) he increases goodwill by 50,000 to cancel the 20X1 loss; (4) he documents the assumptions used in the closing file. Which step is wrong?L2
• In its 20X2 financial statements, Kalyste increased the goodwill of its subsidiary Nordwind, impaired in 20X0, by 30,000 and recognised that amount in other comprehensive income, explaining that the subsidiary has developed a strong reputation internally. Where is the error?L2
• A trainee summarises the reversal rules for a cash-generating unit as follows. Which sentence of the summary contains an error?L1
• The goodwill of Iridane's Sensors unit was fully impaired in 20X1. In 20X3, thanks to innovations designed by its own teams, the unit's value is well above its carrying amount. Management proposes to reinstate goodwill up to the 20X1 loss. What answer should be given?L2