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Here is the suggestion answer quoted from the past paper :
“Goodwill The total goodwill recognised in the Group statement of financial position is $1,100 million, making it highly material at 31·5% of total assets. Analytical review shows that the goodwill figure has increased by $130 million during the year. The goodwill relating to the acquisition of Lynx Co is $100 million according to management’s calculations. Therefore there appears to be an unexplained increase in value of goodwill of $30 million during the year and there is an audit risk that the goodwill figure is overstated, unless justified by additional acquisitions or possibly by changes in value on the retranslation of goodwill relating to foreign subsidiaries, though this latter point would seem unlikely given the large size of the unexplained increase in value. According to IFRS® 3 Business Combinations, goodwill should be subject to an impairment review on an annual basis. Management has asserted that while they will test goodwill for impairment prior to the financial year end, they do not think that any impairment will be recognised. This view is based on what could be optimistic assumptions about further growth in revenue, and it is likely that the assumptions used in management’s impairment review are similarly overoptimistic. Therefore there is a risk that goodwill will be overstated and Group operating expenses understated if impairment losses have not been correctly determined and recognised.”
It seems to long for me to write in the exam. May I ask you can I get majority marks if I only write:
The total goodwill recognised in the Group statement of financial position is $1,100 million, making it highly material at 31·5% of total assets. Analytical review shows that the goodwill figure has increased by $130 million during the year.
There is a risk that goodwill will be overstated and Group operating expenses understated if impairment losses have not been correctly determined and recognised.
THANK YOU
TINO LO
Model answers must be comprehensive so help students/tutors understand the range of valid points in sufficient detail.
Please take a look at the article starred at the top of this forum immediately above your post called “Read the mind of an AAA marker – ESSENTIAL READING” – you will see that in general one one relevant point in a sentence is 1 mark.
Generally each relevant calculation of materiality will get 1 mark (up to a maximum). At AAA rather than AA I think you would be expected to indicate, however briefly, why there might be impairment loss (are you just guessing?) You could do that in the previous point rather than simply state the difference between two numbers – personally I would challenge the model answer referring to something so basic as an “analytical procedure”.
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