11.3.2: Subsequent Measurement of Goodwill

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Once purchased, goodwill is deemed to have an indefinite life and not amortized, but it is evaluated for impairment. Under IFRS, this is done annually and whenever there is an indication that impairment exists. For ASPE this is done whenever circumstances indicate that an impairment exists.

Since goodwill is not a separately identifiable asset, it is allocated to reporting (ASPE) or cash generating units (CGUs; IFRS) expected to benefit from the business acquisition on the acquisition date.

For ASPE, after testing and adjusting the individual assets of the CGU as required, impairment is then applied to the whole reporting unit the same as for intangible assets with an indefinite life. If the carrying value of the reporting unit is greater than its fair value, this difference is the impairment amount.

For IFRS, if the carrying value of the CGU is greater than the recoverable amount (which is the higher of the CGU's value in use or fair value less costs to sell) then this difference is the impairment amount. Impairment is allocated first to goodwill (accumulated impairment losses, goodwill account), with any further excess allocated to the remaining assets' carrying values in the CGU on a proportional basis.

Goodwill impairment reversals are not permitted for ASPE or IFRS.

For example, assume that Calter Ltd. purchased Turnton Inc. and identified it as a reporting unit (CGU). The goodwill amount that was recorded at acquisition was $40,000 and the carrying amount of the whole unit, including goodwill was $360,000. One year later, due to an economic downturn in that industry sector, management is assessing whether the unit has incurred an impairment of its net identifiable assets. The fair value of the unit was evaluated to be $330,000. The direct costs to sell would be $9,300 and the unit's value in use is $340,000.

Under ASPE:

After testing and adjusting the individual assets within the unit, the whole unit was evaluated at a fair value of $330,000 as stated in the scenario above.

Carrying amount of whole unit, including goodwill	$	360,000
Fair value of the unit		330,000
Goodwill impairment loss	$	30,000

The entry to record the loss is shown below.

The net carrying value for goodwill will be $10,000 ($40,000-$30,000). Since individual asset testing and adjustments within the unit was done prior to the evaluation of the whole unit, the impairment amount would not exceed goodwill.

Under IFRS:

Carrying amount of CGU as a unit, including goodwill	$	360,000
Recoverable amount of unit		340,000
(Higher of value in use of $340,000
and fair value less costs to sell
)
Goodwill impairment loss	$	20,000

Entry to record the loss is shown below.

The net carrying value for goodwill after the impairment is $20,000 ($40,000-$20,000). Had the impairment amount exceeded the $40,000 goodwill carrying value, the amount of the difference would be allocated to the remaining net identifiable assets on a prorated basis, since there had been no impairment testing of individual assets as was done for ASPE above.

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