SBRINT
Syllabus D. Financial Statements of Groups entities D1. Group Accounting

D1g. Impairment of Goodwill 16 / 35

Syllabus D1g)

Determine and apply appropriate procedures to be used in preparing consolidated financial statements.

Goodwill is reviewed for impairment not amortised.

An impairment occurs when the subs recoverable amount is less than the subs carrying value + goodwill.

How this works in practice depends on how NCI is measured - Proportionate or Fair Value method.

Proportionate NCI

Here, NCI only receives % of S's net assets.

NCI DOES NOT have any share of the goodwill.

  1. Compare the recoverable amount of S (100%) to..

  2. NET ASSETS of S (100%) +
    Goodwill (100%)

  3. The problem is that goodwill on the SFP is for the parent only - so this needs grossing up first

  4. Then find the difference - this is the impairment - but only show the parent % of the impairment

Example

H owns 80% of S. Proportionate NCI

Goodwill is 80 and NA are 200
Recoverable amount is 240

How much is the impairment?

Solution

RA = 240

NA = 200 + G/W (80 x 100/80) = 100 = 300

Impairment is therefore 60.

The impairment shown in the accounts though is 80% x 60 = 48.

This is because the goodwill in the proportionate method is parent goodwill only. Therefore only parent impairment is shown.

Fair Value NCI

Here, NCI receives % of S's net assets AND goodwill.

NCI DOES now own some goodwill.

  1. Compare the recoverable amount of S (100%) to..

  2. NET ASSETS of S (100%) +
    Goodwill (100%)

  3. As, here, goodwill on the SFP is 100% (parent & NCI) - so NO grossing up needed

  4. Then find the difference - this is the impairment - this is split between the parent and NCI share

Example

H owns 80% of S. Fair Value NCI

Goodwill is 80 and NA are 200
Recoverable amount is 240

How much is the impairment?

Solution

RA = 240

NA = 200 + G/W 80 = 280

Impairment is therefore 40.

The impairment shown in P's RE as 80% x 40 = 32.
The impairment shown in NCI is 20% x 40 = 8.

Impairment adjustment on the Income Statement

  1. Proportionate NCI

    Add it to P's expenses.

  2. Fair Value NCI

    Add it to S's expenses

    (this reduces S's PAT so reduces NCI when it takes its share of S's PAT).