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Basic group structures – Impairment – ACCA (SBR) lectures

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  2. I attended SBR exam on 06.09.23 and Impairment on partial Goodwill came up, I knew I had to artificially gross up Goodwill just for calculation purpose but still could not do it in the exam, I guess I was under too much pressure or lack of real time practice on this topic 🙁

  4. Im sorry but I do not understand. The Goodwill calculation according to the partial method is (according to the technical article we were referring to):

    Parent’s cost of investment at the fair value of consideration given – Parents share of the fair value of the net assets of the subsidiary acquired.

    In the illustration, we use the Goodwill calculation according to full Goodwill method, but we then “gross it out”. How come? Why did we not use the proportionate goodwill, and the gross it out?

    Or are the proportionate and the partial goodwill two different concepts?

  5. How come net asset at reporting date = net assets at acquisition + profit for the year, i.e. 40 + 10 = 50; and not
    net assets at acquisition + share of profit for the year, i.e. 40 + 8/10*10 = 48?

  6. This is a crazy calculation for zero benefit. If you work it out without grossing up the GW you get 33 anyway so GW reduced 28 and other net assets by 5.

    (NA = 50
    GW = 28

    Carry value = 78 Less recoverable value (45) = 33

    Good way to check it though I suppose.

  8. Ref: Illustration – Subsidiary Impairment (partial goodwill)

    As per ACCA Technical Article:

    “If the total amount of impairment loss exceeds the amount allocated against recognised and notional goodwill, the excess will be allocated against the other assets on a pro rata basis. This further loss will be shared between the parent and the NCI in the normal proportion that they share profits and losses.”

    Should the journal entries read?

    Dr Group profit or loss 32
    Dr NCI 1
    Cr Goodwill 28
    Cr Net assets 5

    • I think it right, the any further impairment loss excess ‘total GW+Notion GW’ will be deducted ‘Other net assets’ and these exceed amount also attributed to Group and NCI as their acquired shares. So as you mentioned, the double entry is:
      +) DR: GW: 80%*35=28 -> CR: RE Group: 28 (any notional GW impairment = 20%*35 is not affected to Group and NCI , it’s only used to calculated to Carry amount)
      and:
      +) DR: Other net asset: 5 -> CR: RE Group: 5*80%=4
      -> CR: NCI: 5*20%=1)

      • Based on you analysis, I suspect you meant:

        Cr GW 28 (GW decreases)
        Dr RE Group 28 (RE decreases)
        Cr Other NA 5 (Other NA decreases)
        Dr RE Group 4 (RE decreases)
        Dr NCI 1 (NCI decreases)

  10. Ref: Illustration – Subsidiary Impairment (partial goodwill)

    The adjustments read:
    Dr Group profit or loss 33
    Cr Goodwill 28
    Cr S’s net assets 5

    Should the second Cr read; Cr P’s Net Assets 5??

  12. Hi sir. I have read the F7 article on impairment of goodwill by ACCA (https://www.accaglobal.com/my/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/technical-articles/impairment-goodwill.html). It says the following regarding impairment of goodwill where the proportionate share method is used:

    “When goodwill has been calculated on a proportionate basis then for the purposes of conducting the impairment review it is necessary to gross up goodwill so that in the impairment review goodwill will include an unrecognised ‘notional goodwill’ attributable to the NCI. Any impairment loss that arises is first allocated against the total of recognised and unrecognised goodwill in the normal proportions that the parent and NCI share profits and losses. Any amounts written off against the notional goodwill will not affect the consolidated financial statements and NCI. Any amounts written off against the recognised goodwill will be attributable to the parent only, without affecting the NCI. If the total amount of impairment loss exceeds the amount allocated against recognised and notional goodwill, the excess will be allocated against the other assets on a pro rata basis. This further loss will be shared between the parent and the NCI in the normal proportion that they share profits and losses.”

    I don’t think this has been covered in your lectures. I only remember you said in one of the first few lectures (consolidation) that, in W5 (group RE working), we attribute the entire amount of impairment to the parent if we’re using the proportionate share method because the goodwill is only attributable to the parent. In reality, impairment takes into account the grossed up amount of the parent’s goodwill, so it is also attributable to the NCI and therefore we only take the parent’s share of the impairment to write off against the goodwill, instead of the entire impairment.

    May I have a clarification? And may I know why this is not covered in your lectures?

  13. Sir,
    I think notes on “Impairments and Group accounts” needs to be corrected, as it states that “An asset/CGU is impaired if its carrying amount FALLS BELOW its recoverable amount.” instead it must have states “impaired if its recoverable amount falls below carrying amount” as you shown in example.

    • Malihapk, impairment occurs when the net carrying value of an asset is higher than its recoverable amount.

      Recoverable amount is the higher of :
      Value in use (future discounted cash flows) and Fair value less costs to sale. We take the higher of the VIU and FVLCS so that we don’t overstatement the impairment value.

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