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Can anybody explain for me what is notional goodwill, I saw on revision p2 kit that when we test impairment, such as A hold B 60%, goodwill is 50, net asset B is 100 and recoverable B is 80 they take:
50 x 100%/60 + 100 and compare with 80, the difference x 60% will be the impairment loss, I don’t understand why they don’t take 50+100 and compare with 80?well it is simple that we gross up the goodwill to 100%, since we are given the recoverable value of 100% of business while 50 is 60% of total goodwill that is attributable to A.
Hence to calculate impairment, we calculate the amount of 100% goodwill (gross up to 100%) add it to the value of net assets and compare the result with the recoverable amount of B to reach the total impairment,
To calculate the A’s share in impairment, u multiple total impairment with the amount of holding % of A.
hope that this helps you…
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