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ACCA Strategic Professional · Strategic Business Reporting (International) · Associates and joint arrangements

Elm plc holds a 35% interest in Fir Ltd, an associate carried at $8.0 million under the equity method. Fir's shares have fallen sharply in value. Which statement correctly describes how Elm should test this investment for impairment under IAS 28 and IAS 36?

Where there is evidence of impairment, Elm tests the whole carrying amount of the associate as a single asset under IAS 36, comparing it with recoverable amount. Goodwill is not tested separately, and no loss is allocated specifically to it.

  1. ATest the goodwill included in the carrying amount separately each year for impairment
  2. BApply IAS 36 to the whole carrying amount as a single asset if there is objective evidence of impairment, and do not allocate any loss to goodwill specificallyCorrect
  3. CApply IFRS 9 expected credit loss model to the investment
  4. DImpair only if the fall in share price is a permanent decline confirmed by the market

Explanation

IAS 28 requires the investor to apply IFRS 9 indicators to see whether there is objective evidence of impairment. If so, the entire carrying amount is tested as a single asset under IAS 36, comparing it to recoverable amount. Goodwill is not tested separately because it is not separately recognised, and any loss is not allocated to goodwill.

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