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ACCA Strategic Professional · Strategic Business Reporting (International) · Non-current assets

Halden Co acquired a brand with an indefinite useful life in a business combination, fair valued at $5m. Two years later the directors, under pressure to meet a profit-based bonus target, propose to reclassify the brand as having a 10-year life and amortise it, but also to reverse part of an earlier impairment loss on goodwill to boost profit. Which response is correct under IFRS Accounting Standards?

Reassessing an indefinite life as finite is a permitted change in estimate if evidence supports it, though the asset is tested for impairment. Reversing a goodwill impairment loss is prohibited under IAS 36, and doing so to meet a bonus target would be unethical.

  1. ABoth are acceptable if the directors document their judgement
  2. BChanging to a finite life is a change in estimate and permitted if evidence supports it, but reversing goodwill impairment is prohibited and would be unethicalCorrect
  3. CReclassifying the life is prohibited, but reversing goodwill impairment is permitted
  4. DBoth are prohibited because intangible assets cannot change life classification

Explanation

IAS 38 allows reassessment of an indefinite life to finite as a change in accounting estimate under IAS 8 where circumstances support it, with an impairment test. Reversal of a goodwill impairment loss is prohibited by IAS 36. Using it to hit a bonus target raises integrity concerns.

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