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Impairments – Impairment (CGU) – ACCA Financial Reporting (FR)

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    • Impairment of a CGU (FROM KAPLAN STUDY TEXT 2024-2025)
      “Deal with any specifically impaired assets first”, then impair the CGU. IAS 36
      requires that an impairment loss attributable to a CGU should be allocated to
      write down the assets in the following order:
      1. Purchased goodwill
      2 .The other assets (including other intangible assets) in the CGU on a prorata basis based on the carrying amount of each asset in the CGU.
      Pls always double check before posting information cus ur mistakes can cause loss to others, so the order given in the notes is 100% correct we need to allocate the specific assets first then goodwill and lastly the remaining assets

  2. Hello Christopher,

    I am thankful for this class as well as the other classes they have been very helpful. Thank you Christopher and the Open Tuition team, God bless you all.

    Out of curiosity;

    1) Should the new carrying value after impairment of buildings be used to calculate the next year’s depreciation?

    2) If the total value of buildings were scrapped out while allocating impairment should buildings be written off from the accounts? If yes, how?

    3) Also if the total value of buildings were scrapped out while allocating impairment and some impairment still remains can Plant & Equipment be further impaired?

    Thank you again for being available.

  3. Hi Chris,

    could you please clarify the order of impairment losses allocation in case of CGU. As I remember IAS 36 said that goodwill should always been the first

    Kind regards,
    Igor

    • I agree. IAS 36 paragraph 104 says:

      An impairment loss shall be recognised for a cash?generating unit (the smallest group of cash?generating units to which goodwill or a corporate asset has been allocated) if, and only if, the recoverable amount of the unit (group of units) is less than the carrying amount of the unit (group of units). The impairment loss shall be allocated to reduce the carrying amount of the assets of the unit (group of units) in the following order:
      (a) first, to reduce the carrying amount of any goodwill allocated to the cash?generating unit (group of units); and
      (b) then, to the other assets of the unit (group of units) pro rata on the basis of the carrying amount of each asset in the unit (group of units).

      • “When an impairment loss is recognised for a cash- generating unit, the loss should be allocated between the assets in the unit in the following order:
        (a) First, to any assets that are obviously damaged or destroyed
        (b) Next, to the goodwill allocated to the cash generating unit
        (c) Then to all other assets in the cash-generating unit, on a pro rata basis”

        That’s what BPP study materials say…
        If some NCA is destroyed and can be used only for scrap (which means that patents and licences according to this NCA’s are also appears to be scrap) these assets should be written off before Goodwill

        correct me if I’m wrong

        regards

  4. Hi Chris

    I am studying the BPP Financial reporting text for June 2020 exams and it says that in cases of impairment of cash generating units, the goodwill should always be impaired first. In your example you impaired the entire amount of the specific asset and then the Goodwill next. Can you tell me which is correct, thanks!

    Eliza.

    • Sorry I should clarify that in the text, there is a question which specifies an asset destroyed in a terrorist attack. Yet the goodwill is still impaired in full and the asset which has a carrying amount of 1million is impaired by the remainder of the impairment, 0.9million. This means there is a carrying amount of 0.1 still on the books for the destroyed asset? Is that right?

      Thanks
      Eliza.

  6. Dear sir,
    A very quick question for you.
    When we have an impairment loss to allocate and our CGU consists of goodwill and a damaged asset on top of the rest assets. Do we deduct first the value of the damaged asset from impairment and then write off the goodwill or the other way around?

      • @Hello ryanb88, thank you for your response. Eventhugh i am a bit late to this discussion I will try to give it a go. The explanation of the tutor in the video is not very enlightening. Maybe it depends on how someone understand the question, but I would oppose the opinion of the tutor and say that the question, does not give sufficient information to assume that the P&E does not get impaired further. My explanation is as follows:

        Eventhough the text say that P&E with an value of 1.200k Pounds had to be scrapped, it does not say how valuable the remaining 4’000k are. In fact, we know that we had a CGU book value of 17mln. Pounds which was now impaired by 1.200k Pounds due to the fire. After the fire we now have 15.8mln. Pounds worth of assets according to the books.
        However, according to the impairment test the recoverable amount is still 9.8mln. Pounds, which is below the book value. Based on that we know, that the CGU has to be impaired. This includes the CGU as a total, which affects Goodwill, Building and P&E, because those are in conjunction above the recoverable amount.
        The only item that does not get further impaired are the other intangibles, because we have in fact a buyer for those.

        Can you or someone from the tutor team, help me to understand where my logic is wrong or where the missunderstanding is coming from? Would it be possible to provide a detailed explanation?

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