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ISSUES OF IFRS GOODWILL AND IMPAIRMENT PROJECT

Author

Class Name
Professor
Institution Affiliation
City/State
Name

Page 1 of 9 pages

ELTON & Associates
Chartered Accountant
GPO Box 2145, Aldelaide SA 6001
t
...
+61 8 3245 8790
e
...
com
...
Goodwill impairment is the permanent reduction in value of
Goodwill (Pertersen, 2010)
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In the
case that management suspects that the goodwill is impaired, it should be tested for impairment
without waiting for the annual impairment test
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However, in
the case that the recoverable amount is greater than the carrying amount plus goodwill, then the
impairment is zero
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Impact of Taxes on Impairment Testing
The CGU carrying value and the test discount rate both are affected by taxes
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Post tax rate is the most observed return of
market rate of return is the post-tax rate
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Therefore, when calculating Value in Use, post-tax cash flows give varying results from pre-tax
cash flows
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Management’s forecast prices should not be used in the VIU calculation but instead
published prices should be used
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This is

Page 3 of 9 pages

unless there is a forecast price arising from a published future price at the date of impairment
test
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Make
use of the price of contract in place of forward curve price or sot price
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The derivative
contracts are treated as current liabilities or current assets and accounted for at fair value
according to IAS 39
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Foreign currencies become relevant to impairment testing when CGU cash flows are
denominated in a currency that is not the reporting currency
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Provisions of Decommissioning and associated cash flows
Provisions of decommissioning and cash flows that are associated can either be excluded or
included as long as the cash flows and the carrying amount are treated in a consistent manner
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In the case that the provisions for
decommissioning carrying amount is part of the CGU carrying value, estimates of future cash
flows are included in the DCF model in an effort to come up with the recoverable amount
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Measurement of CGU which includes provisions for Decommissioning
Page 4 of 9 pages

There are varying discount rates used to come up with the recoverable amount when measuring
CGU that has a restoration obligation, hence a mismatch
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In case the provisions were calculated using a higher discount rate, then
les risk should be incorporated in the cash flows
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Follow ups on Previous Year’s Impairment Tests
Previous year’s impairment tests could have been undertaken as a result of indicators such as a
drop in commodity prices
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Performance that supersedes estimation is an indicator of possible impairment reversal (IAS 36)
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For any further explanation, please contact John Doe at johndoe21969@gmail
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Kind Regards,

John Doe
Junior Accountant
ELTON & Associates

Page 5 of 9 pages

ELTON & Associates
Chartered Accountant
GPO Box 2145, Aldelaide SA 6001
t
...
+61 8 3245 8790
e
...
com
...
Luke Cage
Owner
Luke’s Café Co
...

8 Fourth Street
Wingfield SA 5013

SUBJECT: EXPLANATION OF THE ISSUES OF IFRS 3 GOOWILL AND IAS 36
IMPAIRMENT OF GOODWILL AND THE IMPLICATION
Dear Mr
...

In accordance with IAS 36 Impairment, goodwill of a cash generating unit, shall subject to
impairment tests every year
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In this case, your cash generating unit is the subsidiary you
acquired five years ago
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This amount is significant to your Financial Reports
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The balance of the goodwill should be treated as a Non-current asset in the balance
sheet (Hamberg, 2011)
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Hence, the amortized goodwill arising as a result of the subsidiary should
be deducted from the profits to offset the profits from the subsidiary
...
The impairment
loss should be distributed throughout the five years, hence the significance of backdating the
financial reports (Carlin, 2011)
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With this accounting treatment,
the goodwill will be correctly accounted for and recognized in the financial reports
...
com
...
M
...
M
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, 2011
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Journal of International Financial Management & Accounting,
22(3), pp
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M
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, 2011
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Pacific Accounting Review, 23(3), pp
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and Beisland, L
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, 2014
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Journal of International Accounting, Auditing and Taxation,
23(2), pp
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and Plenborg, T
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How do firms implement impairment tests of goodwill?
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419-446
Wines, G
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and Windsor, C
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Implications of the IFRS goodwill accounting
treatment
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862-880

Page 9 of 9 pages



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