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