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Hey sir. Just need some clarifications on the following issue.
A cash generating unit which includes goodwill acquired in a business combination, why when the CGU is tested for impairment, goodwill needs to be grossed up where there is a non controlling interest.
So just say for example, company A acquires 80% of company B and that goodwill on acquisition works out to be $ 1,000,000. Shouldn’t the $ 1,000,000 be included in the CGU as goodwill, why does it needs to be grossed up?
We need to gross up the goodwill is the NCI is measured using the proportionate share of net assets method.
When using this method the goodwill presented is that of the parent only, and so we need to include the full goodwill to get the full value of the CGU. To do this the partial goodwill needs to be grossed up.