Lesson eLearning

Company P has goodwill of ₹250 crores attached to CGU X. The other assets of CGU X (excluding goodwill) have a carrying amount of ₹400 crores. At year‑end, the fair value less costs of disposal of CGU X is ₹620 crores and its value in use is ₹610 crores. Determine the impairment loss on goodwill, record the journal entry, and explain how the loss should be disclosed in the financial statements.

hard 5 marks Class 12 · Accountancy · Goodwill Nature and Valuation
Answer
Impairment loss = ₹30 crores; journal entry – Dr Impairment loss ₹30 crores, Cr Goodwill ₹30 crores

The correct answer is Impairment loss = ₹30 crores; journal entry – Dr Impairment loss ₹30 crores, Cr Goodwill ₹30 crores — Disclose the ₹30 crores expense in the Statement of Profit and Loss and note the CGU, amount of loss, and impairment methodology used.

Step-by-step solution

  1. Total carrying amount of CGU = Goodwill + Other assets = ₹250 crores + ₹400 crores = ₹650 crores.
  2. Recoverable amount = higher of fair value less costs (₹620 crores) and value in use (₹610 crores) = ₹620 crores.
  3. Impairment loss = Carrying amount – Recoverable amount = ₹650 crores – ₹620 crores = ₹30 crores.
  4. Allocate impairment to goodwill first; goodwill remaining after loss = ₹250 crores – ₹30 crores = ₹220 crores.
  5. Journal entry: Debit Impairment loss ₹30 crores, Credit Goodwill ₹30 crores.
  6. Disclose the ₹30 crores expense in the Statement of Profit and Loss and note the CGU, amount of loss, and impairment methodology used.
Common mistake: Using the lower of the two recoverable amounts or allocating impairment to other assets before goodwill

Concept tested: Goodwill impairment testing under Ind AS

Published · How this solution was prepared and checked

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