Question

Blankbank Corporation has $150 million of goodwill on its books from the 2014 acquisition of Walsh Technology. Walsh is considered a cash-generating unit under IFRS. At the end of its 2016 fiscal year, management provided the following information for its annual goodwill impairment test ($ in millions):

Fair value of Walsh less costs to sell $455
Fair value of Walsh's net assets (excluding goodwill) 400
Book value of Walsh's net assets (including goodwill) 500
Present value of estimated future cash flows 440
Under IFRS, what amount of goodwill impairment loss, if any, should Blankbank recognize?
a) $100 million.
b) $60 million.
c) $50 million.
d) $45 million

Answer 1

Blankbank Corporation should recognize a goodwill impairment loss of $45 million for Walsh Technology, as the fair value less costs to sell of Walsh is lower than the carrying amount of its net assets including goodwill.

Option d is the correct.

Step-by-step explanation:

Goodwill Impairment Loss Calculation under IFRS

To determine the amount of goodwill impairment loss that Blankbank Corporation should recognize for Walsh Technology under IFRS, we need to compare the carrying amount of the unit's net assets (including goodwill) to the higher of its fair value less costs to sell or the present value of the estimated future cash flows.

The higher of the fair value less costs to sell ($455 million) and the present value of estimated future cash flows ($440 million) is $455 million. As the carrying amount is $500 million, Blankbank Corporation would therefore recognize a goodwill impairment loss of $45 million ($500 million - $455 million).

The correct answer to the student's question is (d) $45 million.