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Consolidated Statement of Financial Position
3.8 Impairment
IFRS 3 Business Combinations requires that goodwill is tested at each reporting date
for impairment. This means that goodwill is reviewed to ensure that its value is not
overstated in the consolidated statement of financial position.
In the exam you will either be told the amount of the impairment loss or you will be
told to calculate it as a percentage of the goodwill. You will not be required to
calculate the impairment loss by carrying out an impairment review.
If an impairment loss exists, goodwill is written down and the loss is charged against
profits in the consolidated statement of profit or loss (see next chapter for more
detail).
The charge against profits will result in a reduction in the equity section of the CSFP.
How the impairment loss is charged against equity in the CSFP will depend on the
method adopted by the entity for valuing NCI, or in other words, the method used to
calculate goodwill.
Fair value method
When valuing NCI at the fair value method we should record the impairment loss by:
Reduce goodwill (W3) by the full impairment loss (Cr goodwill)
Reduce NCI (W4) by the NCI % of the impairment loss (Dr NCI)
Reduced retained earnings for the group (W5) by the parent's % of the
impairment loss (Dr RE)
Proportion of net assets method
When valuing NCI at the proportion of net assets method we should record the
impairment loss by:
Reduce goodwill (W3) by the full impairment loss (Cr goodwill)
Reduced retained earnings for the group (W5) by the full impairment loss (Dr
RE)
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