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Group accounting – Basic groups

Impairment of goodwill

6.1 Background

Goodwill is tested annually for impairment.

Goodwill does not generate independent cash flows so is tested for impairment as
part of a cash-generating unit. For exam purposes, this is normally a subsidiary.

6.2 Impact of NCI

Whether the NCI at acquisition was measured at fair value or
proportionately has a significant impact on the impairment review:

 Fair value method – the group has recognised full goodwill so
this can be added together with the other net assets of the
subsidiary and compared with the recoverable amount.

 Proportionate method – only the group’s share of goodwill has
been recognised, so this must be grossed up to include the NCI’s
share before performing the impairment review.

Illustrations and further practice

You can now attempt TYU question 6 from Chapter 19.

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