After a goodwill test, the carrying amount of goodwill is ₹120 crores. The recoverable amount (higher of fair value less costs of disposal and value in use) is found to be ₹90 crores. Calculate the impairment loss for goodwill and explain how it should be presented in the financial statements.
Answer
Impairment loss = ₹30 crores; it should be shown as a separate line item under Other Expenses in the statement of profit and loss, and goodwill reduced to ₹90 crores in the balance sheet.
Step-by-step solution
- Identify the carrying amount of goodwill, ₹120 crores.
- Determine the recoverable amount, ₹90 crores, which is the higher of fair value less costs of disposal and value in use.
- Calculate impairment loss by subtracting recoverable amount from carrying amount: ₹120 crores – ₹90 crores = ₹30 crores.
- Record the impairment loss as a separate line item under Other Expenses in the statement of profit and loss.
- Reduce the carrying amount of goodwill to the recoverable amount, ₹90 crores, in the balance sheet.
- Conclude that the impairment loss is ₹30 crores and the presentation details.
Common mistake: Using fair value as recoverable amount without comparison to carrying amount or failing to reduce carrying amount after impairment
Concept tested: Goodwill impairment test
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