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Note 1:
the goodwill gets impaired on 30 april 2013 but goes back up on 30 april 14.
the answer says that the increase in the GW is due to internal generation (probably) and is not the reversal of the purchased goodwill.
my questions:
1. on what basis is the above assumed? i mean, where in the question are the hints etc.
2. how wd the examiner put it if the reversal was indeed was that of the purchased amount?
thanks and regards
Hi,
It is impossible for purchased goodwill to be reversed. The calculation of goodwill is essentially a figure calculated on the acquisition date and is then difficult to measure again after that date, so reversing any impairment is not going to happen.
If the company is saying that the goodwill has increased then it has to be related to something other than the purchased goodwill, so the only other option is the creation of some internally generated goodwill that they believe to have been created. Internally generated goodwill cannot be recognised, so whatever they’ve recognised has to be reversed out.
Personally, I think the sentence in the answer is not required. Goodwill once it has been impaired is very rarely revalued so remove any increase in value from the accounts.
Thanks
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