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Impairment of goodwill

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › Impairment of goodwill

  • This topic has 3 replies, 2 voices, and was last updated 4 years ago by Stephen Widberg.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • June 25, 2020 at 7:57 pm #574704
    learning1
    Participant
    • Topics: 7
    • Replies: 3
    • ☆

    Hi,

    I’m struggling with the journal entries of Impairment of Goodwill for Partial and Full Valuation of Goodwill.

    For Full Valuation of Goodwill the journal entry is

    CR goodwill 2
    DR GRE (60% of 2) 1.2
    DR NCI (40% of 2) 0.8

    But how is the journal entry made for the P&L statement? Because in the P&L statement for Full Goodwill we put the impairment in S’s column. But the journal entry above doesn’t mention the P&L statement?

    June 26, 2020 at 2:44 pm #574740
    Stephen Widberg
    Keymaster
    • Topics: 16
    • Replies: 3408
    • ☆☆☆☆☆

    Doesn’t matter about the columns too much, as you won’t be asked to prepare full financial statements. If you were using columns, and it’s full goodwill, I would show the full amount (100%) of the impairment in S’s column.

    But you are more likely to be asked to calculate just one or two figures (e.g. goodwill, impairment, and profits/ TCI attributable to NCI.

    June 28, 2020 at 11:44 am #574860
    learning1
    Participant
    • Topics: 7
    • Replies: 3
    • ☆

    Hi Stephen,

    Many thanks for your response.

    I’m still not understanding completely.

    I understand that with Impairment of Full Goodwill, that Group Retained Earnings and NCI are both deducted their share of the goodwill impairment. But the thing that confuses me is how this makes it way to the P&L statement since the journal entries are as follows;

    CR goodwill 2
    DR GRE (60% of 2) 1.2
    DR NCI (40% of 2) 0.8

    Why this is confusing to me is because with the impairment of partial goodwill (after grossing up etc) the journal entries are;

    CR Goodwill
    CR Net Assets
    DR P&L

    Here the debit goes to P&L, but with full goodwill the debits go to GRE and NCI.

    Why are these journal enties different between Full and Partial goodwill? And with Full Goodwill, how does the impairment makes its way to the P&L statement with journal entries?

    Any help would be much appreciated.

    June 28, 2020 at 4:11 pm #574878
    Stephen Widberg
    Keymaster
    • Topics: 16
    • Replies: 3408
    • ☆☆☆☆☆

    SFP
    Full goodwill

    Dr GRE x
    Dr NCI x
    Cr Goodwill x
    Cr Net Assets x (if impairment exceeds net assets)

    Partial goodwill

    Dr GRE x
    Cr Goodwill x
    Cr Net Assets x (if impairment exceeds net assets)

    P&L
    In both cases the full amount of impairment is recognised in operating expenses in P&L. If full goodwill, you would have to adjust NCI %PAT / TCI for impairment.

    REASON
    Full goodwill is measured on whole business, including the NCI share.

    FINAL COMMENT
    In the real exam remember that journals are not explanations – so go easy on them!

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