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Chapter 24

Example 3

CGU

A company operates a unit comprising the following assets and carrying
amounts at 30 April 20X7.

$000
Machinery 500

Goodwill 180
Land and buildings 900
Brand 300
Other net assets 120
–––––

2,000
–––––

On 30 April 20X7, following a period of adverse publicity, the company
decided to scrap the brand. An impairment review established that the
recoverable amount of the unit at 30 April was 20X7 $1,170,000. The other
net assets are stated at their recoverable amount.
How will this impairment be allocated against the various assets?

Solution

A three-column approach is a useful technique for CGU questions, with
columns for carrying amount, impairment and recoverable amount.

Begin by impairing the brand, as we are told that it is to be scrapped. This
leaves us with a CGU value of $1.7m ($2m – $0.3m). Complete the carrying
amount column with the figures from the question, totalling $1.7m, then enter
the total for the recoverable amount ($1.17m) and the impairment of $0.53m
($1.7m – $1.17m).

The other net assets remain unimpaired as they are already held at their
recoverable amount. Allocate the impairment as follows:

1 Goodwill, impaired by $180k

2 Remaining impairment of $350k (830 – 300 – 180) allocated against
remaining assets (Machinery, Land and buildings) pro-rata based on their
carrying amount (see working below)

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