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When goodwill is impaired, which of the following statements regarding its presentation in the financial statements is correct?

medium MCQ 2 marks Class 12 · Accountancy · Goodwill Nature and Valuation
  1. Option A: The impairment loss is shown as a separate line item under 'Other expenses' in the profit and loss account.
  2. Option B: The loss is transferred to the 'Retained earnings' directly without affecting the profit and loss account.
  3. Option C: The reduced carrying amount of goodwill is disclosed only in the notes and no journal entry is required.
  4. Option D: The impairment loss is shown under 'Depreciation and amortisation' in the profit and loss account.
Answer
Option A: The impairment loss is shown as a separate line item under 'Other expenses' in the profit and loss account.

The correct answer is Option A: The impairment loss is shown as a separate line item under 'Other expenses' in the profit and loss account. — Therefore, Option A is the correct statement.

Step-by-step solution

  1. Read each option carefully and recall the IAS/Ind AS requirement for goodwill impairment.
  2. Option A states that the loss appears as a separate line item under other expenses – this matches the standard presentation.
  3. Options B, C and D describe treatments that are not prescribed by the standards.
  4. Therefore, Option A is the correct statement.
Common mistake: Thinking the impairment loss is shown under depreciation or amortisation

Concept tested: Presentation of goodwill impairment loss

Published · How this solution was prepared and checked

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