IAS 36 allocation of goodwill to CGUs

[Luxman Shankar]

Hi

We have a case where goodwill arose out of a business combination but management does not monitor goodwill as any specific CGU level. In such a case, we feel it is not necessary to allocate goodwill to any CGU for impairment testing purpose (IAS 36 para 80(a). Impairment test will be carried out at the entity level.

Would appreciate your views on this.

Thanks
Luxman Shankar

[Leo]

I haven't come across a goodwill that didn't arise from a BS. Where did the goodwill come from?

[Luxman Shankar]

Through acquisition of a business

[Leo]

Are you talking about the individual accounts

[Luxman Shankar]

We acquired a business and recorded goodwill being the difference between the purchase price and the fair value of the business + identified intangible assets.

Management does not monitor this goodwill except at the entity level.

In such a case, is it necessary to allocate goodwill to each CGU (or segment at the minimum) and test for impairment separately for each such CGU or segment?

[JRSB]

It may be that goodwill is allocated across various CGUs (and therefore tested at a higher level than any one CGU).... Start by considering what it represents....why did you pay more than the fair value of assets in the first place?

[Luxman Shankar]

That's the point I am trying to use to support non-allocation of goodwill.

We paid more than the fair value of the assets because of future benefits like synergies, which are more identified at the entity level than with any lower level CGUs

[Marek Muc]

Do all CGUs benefit from the business combination?

[JRSB]

You're either saying that goodwill needs to be tested at the level of multiple CGUs, or that it's impaired...

[Luxman Shankar]

Do all CGUs benefit from the business combination?

Yes, all CGUs get benefits of synergies, adoption of better business efficiencies etc

[Luxman Shankar]

You're either saying that goodwill needs to be tested at the level of multiple CGUs, or that it's impaired...

We are testing for impairment of goodwill on an annual basis (as required by the relevant standard), but the question is whether we should first allocate the goodwill to all CGUs and then do the testing for each CGU.

Our view is no need to allocate as goodwill was paid for the entity as a whole - no specific benefits at individual CGU were envisaged during acquisition

[Marek Muc]

Ok then, the final thing to check is whether the entity would identify any operating segments under IFRS 8 (IAS 36.80(b)). This applies irrespective of whether the entity is in the scope of IFRS 8, so this may be a new exercise for you.
https://ifrscommunity.com/knowledge-bas ... -segments/

[Luxman Shankar]

Ok then, the final thing to check is whether the entity would identify any operating segments under IFRS 8 (IAS 36.80(b)). This applies irrespective of whether the entity is in the scope of IFRS 8, so this may be a new exercise for you.
https://ifrscommunity.com/knowledge-bas ... -segments/

Thanks.

But what then is the implication of IAS 36.80(a), does it not mean that if management does not monitor goodwill against each CGU or group of CGU (which can also be a segment), then it need not allocate goodwill? Yes, there is monitoring of segmental performance but that is excluding goodwill.

[Marek Muc]

80(a) is just one of the conditions that seems not applicable in your scenario
In any case, you can't allocate goodwill to a group of CGUs that is (or would be) larger than an operating segment

PS. please don't quote preceding posts https://ifrscommunity.com/ifrs-forum-qu ... in-replies

[Luxman Shankar]

Thanks all for your inputs