ACCA Applied Skills · Financial Reporting · Impairment of assets
Which statement about allocating an impairment loss for a CGU under IAS 36 is correct?
An impairment loss on a cash-generating unit is first applied to reduce any goodwill allocated to it, and the remaining loss is then allocated to the unit's other assets pro rata to their carrying amounts, subject to each asset not falling below its recoverable floor.
- AThe loss is first allocated to reduce goodwill, then to other assets pro rata to carrying amountsCorrect
- BThe loss is allocated pro rata across all assets, including goodwill, based on carrying amounts
- CThe loss is first allocated to the non-current assets with the shortest remaining useful lives
- DThe loss is charged wholly to goodwill, and any excess is ignored
Explanation
IAS 36 requires the loss to reduce goodwill allocated to the CGU first, then the other assets of the unit pro rata to their carrying amounts. Allocating pro rata including goodwill is wrong because goodwill takes priority. The excess is not ignored, as it reduces other assets.
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