Can you reallocate goodwill

The main changes introduced in the proposal as compared to the existing requirements of IAS 36 were: i the incorporation of step two and ii the requirement to consider PAH in step four. There was general support for the staff recommendation and the Board instructed the staff to continue developing the proposal. The Chairman indicated that it was a practical idea which did not appear too costly. He acknowledged that it would still be necessary to address other issues that made impairment testing too complex.

The concerns noted were similar in nature as to those discussed in the last meeting, in March. Some Board members pointed out that there were still limitations in the proposal; particularly, such as when there was more than one acquisition.

Other concerns noted were i the proposal would not address all situations in which there was an overpayment; ii other situations that lead to late recognition of impairment; and iii the risk that it could also open the door for manipulation because management could allocate goodwill to a new CGU.

On the other hand, others believed that it would be an opportunity to have CGUs determined at lower levels. Few Board members believed that the proposal would add complexity and would not solve the issue.

Others also noted that headroom also existed in other assets including land with unrealized gains. The Chairman concluded that there was general support for the staff recommendation and instructed the staff to consider the recommendations raised by the Board.

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Login or Register Deloitte User? Welcome My account Logout. Search site. However, the way that entities choose to measure their goodwill and NCI affects the nature of the test and the amount of impairment loss recognised.

Under the partial method, a notional gross-up of the entity's goodwill balance is required to ensure the carrying value of the CGU includes any goodwill attributable to the NCI. The grossed up amount is compared to the recoverable amount of the CGU and an impairment loss calculated. Only the holding company's share of the impairment loss is recognised in profit or loss.

This requirement is not new and entities will already be grossing up goodwill from partial business combinations in impairment tests. Under the full goodwill method, there is no grossing up required because the goodwill figure already captures the goodwill that is attributable to the NCI. An entity acquires 60 per cent of a subsidiary, which is a CGU. This table this shows the impairment test under the partial goodwill method.

Under the partial goodwill method only the holding company's share of the impairment loss is recognised in profit or loss because only the holding company's goodwill share is recognised. Using the full goodwill method, the impairment loss charged to profit or loss is higher for an entity that elects to adopt the fair value method.

There will almost always be a difference in the impairment figure calculated under the two methods. Under the full goodwill method, the impairment loss is recognised in full. There are requirements for allocating goodwill impairment losses between the holding company and the NCI. Where the subsidiary with the NCI represents a CGU for goodwill impairment-testing purposes, the allocation of the loss is done on the same basis as the allocation of profit.

The allocation of impairment losses between the holding company and the NCI can become more complex if the subsidiary is not a CGU itself but part of a larger CGU for impairment testing purposes. The full goodwill method introduces some complexities in impairment testing in this scenario and management should consider the impact on impairment tests when choosing goodwill method.

Difficulties may well occur where entities have a CGU that has goodwill from several sources. Examples will be subsidiaries acquired before IFRS 3 was revised that apply the partial goodwill method, subsidiaries acquired after IFRS 3 was revised that apply the full goodwill method, and entities that have goodwill from per cent-owned subsidiaries.

Assume that goodwill of GBP 27m arose on the acquisition of the wholly owned subsidiary. If the full goodwill method is used, the results are as shown in the Impairment Problems table below:. Under IAS 36, impairment losses are allocated first to goodwill and then to the identifiable assets on a pro rata basis.

All the impairment loss in the example relates to goodwill and is allocated to the two subsidiaries that form the CGU. The loss will be allocated based on their relative carrying amounts of goodwill. Based on the screening process above, we identified more than instances of a goodwill reassignment within the data set of U. Furthermore, the data suggests that the frequency of goodwill reassignments remained consistent over the six-year time window that we analyzed Figure 1.

Although the underlying reason for the organizational structure change was not always discussed in the SEC filings, common reasons include the following:.

Although the total number of companies performing a goodwill reassignment typically ranged between 1 and 2 percent of total U. The accounting rules for goodwill reassignments focus on a relative fair value allocation approach. There is no explicit definition of this term within the ASC literature, but the guidance includes the following simplified example within ASC For going concern businesses that are expected to generate positive future cash flows, the most common valuation methodologies employed are the discounted cash flow method a form of the Income Approach , the guideline public company method a form of the Market Approach , and the merger and acquisition method also a form of the Market Approach.

Therefore, the fair value of the legacy reporting unit s must first be determined as of the goodwill reassignment date to assess whether there is an indication of impairment before the reassignment. After that determination is made, the assets and liabilities of the legacy reporting unit s , including the incorporation of goodwill impairment if any from the interim test, is allocated to the new reporting unit structure.

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