Impairment of subsidiary

Impairment consideration will only use assets at date of acquisition if impairment review is at date of acquisition. If impairment consideration is at year end, then it has to be assets as at date of impairment review

At acquisition, your impairment consideration will be integral within your fair value assessment. It should never be appropriate to impair as at date of acquisition

Net assets in working W2 Goodwill are the fv of net assets at acquisition date. If you’re looking for an impairment of net assets at the year end in the question, surely you must be considering the fv of net assets as at the year end …. Unless I’m missing the point of your question

In the opentuition notes, we look at the net assets as a unit when we are calculating goodwill. The only other time we consider the value of net assets is when we are buying / selling a subsidiary. Kaplan list net assets at date of acquisition and again at “relevant” date, whether that be disposal date, consolidation date, whatever they do that to find post-acquisition movement.

The OT equivalent is within working W3 but there we only look at Retained Earnings +/- Revaluations. So, following the OT method, share capital and share premium are never again considered after working W2 Goodwill whereas in Kaplan they are.

Now to your specific question ……”so on opentuition the net assets at sfp working might be w3. So im talking abt the NA at sfp which we find thru the working.” No, I’ve just explained why we will not find the value of net assets at Statement of Financial Position date within working W3.

Now it seems your question comes down to “Do we include goodwill within the value of assets when considering the impairment of a subsidiary?” (“Do we take that value and goodwill as carrying value or do we take the total assets figure from the Sfp?”) Accepting that goodwill is an asset of the subsidiary, and presuming that recoverable amount is given within a question, the comparison necessary to determine impairment is “carrying value + goodwill compared with recoverable amount”

Does that help?

Well, now I really do not understand your question! The only difference I can see between your 2 alternatives “balance sheet total assets figure or do we use the figure which we found for NA at SFP” is that the balance sheet total assets figure is not fair value based whereas the assets at date of acquisition ARE fair valued. But even that is at a tangent from your question

I apologise for this – and undoubtedly it’s my fault – but I really do not understand your question 🙁

IF I understand you this time, then it must be net assets at fair value.

Ok this time?

you take net assets at the date where the impairment test must be done or at the date where the impairment has occurred. So you need to adjust the net assets to that specific date( usually its at year end because this is where impairment tests are done and it will be the same figure of net assets that is used to calculate nci. Also if there’s no goodwill for nci you need to calculate a notional goodwill ( gross up goodwill to make it become 100% under partial method ) then add it to the adjusted NA at that specific date to compare it to the recoverable amount and if theres any imp loss u need to multiply it by the % holdings of the parent since theres no share of goodwill for nci under partial method. So if you follow this logic there’s no need to gross up the goodwill figure under the full method goodwill since theres a portion of goodwill already attributable to nci.

Hi Mike

I am unclear with regards to the calculation of a subsidiary’s carrying amount when it is under impairment review.

I have come across 2 separate methods for calculating carrying amount not consistent with each other.

I refer to Past Paper Q1 P2 June 2013 for first method: NET Assets as per year end SOFP are used;

vs

Past Paper Q1 P2 December 2012 second method: TOTAL Assets as per year end SOFP are used

When is it appropriate to use net assets rather than Total assets and vice versa?

Correct. I am answered.

Thank you for replying even at this hour. Very much appreciated.

You sir, are a gentleman and a scholar… quite literally.

Hi Sir,

Another confusing student here. So the clue which tell us what amount should we take in the impairment calculation in Dec 2012 question is “the recoverable amount has been determined without consideration of liabilities ” . Without this note, we should take into consideration when calculating the impairment : nett assets + fair value adjustments +goodwill. In Dec 2012 the equation change because nett assets = total assets – liabilities , which in this case liabilities = 0.

I am understanding the formulas better than the words.

Thanks