CFA Level I · CFA Level I Exam · Analysis of Long-Term Assets
An IFRS reporter carries a cash-generating unit with goodwill of 40, other net assets of 160, giving a carrying amount of 200. The recoverable amount of the unit is 150. The impairment loss allocated to goodwill and the loss allocated to other assets are most likely:
The total impairment is 50, the carrying amount of 200 less the recoverable amount of 150. IFRS applies the loss first to goodwill, up to its 40 carrying amount, and then allocates the remaining 10 to the other assets of the unit.
- AGoodwill 10; other assets 40
- BGoodwill 40; other assets 10Correct
- CGoodwill 50; other assets 0
Explanation
Total impairment = 200 - 150 = 50. Under IAS 36 the loss is first allocated to reduce goodwill, to a maximum of its carrying amount (40), and the remaining 10 is allocated pro rata to the other assets. Allocating 50 to goodwill exceeds its carrying amount.
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