Goodwill impairment Goodwill must be tested for impairment annually. The accounting treatment for impairment depends on
the how the NCI is measured. Accounting treatment can be summarized as follows:
•
If NCI is measured at its proportionate share of the acquiree’s net identifiable assets method, the
total goodwill is attributable to parent: Consequently, the impairment loss is entirely attributable
to parent. Hence impairment loss is adjusted against the parents’ retained earnings.
•
If NCI is measured at its fair value, there is a share of goodwill attributable to the NCI as well,
consequently, the impairment loss must be divided among the parent and NCI. Hence
impairment loss is adjusted against the subsidiary’s retained earnings.
Example 3 ABC PLC acquired 75% of the equity interest in XYZ PLC at 1 January 2017 for Rs. 50 million. The
Statement of Financial Position as at 31 March 2018 were as follows
Rs.’000 ABC PLC XYZ PLC
Assets
Non-current assets
Property, plant and equipment 35,000 25,000
Investment in XYZ PLC
50,000
- . 85,000
25,000
Current assets Inventory
10,000
5,000
Receivables
30,000
20,000
Cash
10,000
10,000
Total assets 135,000
60,000
Equity and liabilities Equity Rs.1 ordinary shares 80,000
40,000
Retained earnings 35,000
15,000
115,000
55,000
Current liabilities 20,000
5,000
Total equity and liabilities 135,000
60,000
