Exhibit 3:
Selected Financial Data for Topmaker, Inc., Estimated Year Ending 31 December 2017 ($ millions)
Carrying value of cash-generating unit/reporting unit | 15,200 |
Recoverable amount of cash-generating unit/reporting unit | 14,900 |
Fair value of reporting unit | 14,800 |
Identifiable net assets | 14,400 |
Goodwill | 520 |
Finally, Topmaker announces its plan to increase its ownership interest in Rainer to 80% effective 1 January 2018 and will account for the investment in Rainer using the partial goodwill method. Thronen estimates that the fair market value of the Rainer’s shares on the expected date of exchange is $2 billion with the identifiable assets valued at $1.5 billion.
Based on Exhibit 3, Topmaker’s impairment loss under IFRS is:
- $120 million.
- $300 million.
- $400 million.
As you already know the Goodwill is not amortized by it is subject to impairment at least annually. Once the goodwill is write down, it cannot be restored.
Under both IFRS & US GAAP the impairment of goodwill is recorded as separate line item on the income statement.
So in this question the recoverable amount is 14,900 whereas carrying value is 15,200 so there is an impairment loss of 300
So option B is correct
I have one doubt.
under the equity method, the impairment of goodwill cannot be separately tested.
but under the full goodwill method, can the impairment of goodwill be separately tested??
under the full goodwill method, goodwill is treated as a single asset, and it cannot be separately tested for impairment. The full goodwill method involves recognizing the entire goodwill of an acquired company, regardless of the percentage of ownership acquired.
Therefore, if impairment of goodwill occurs under the full goodwill method, it is not possible to separately test and allocate the impairment between the parent and subsidiary. Instead, the parent company recognizes the impairment loss on its investment in the subsidiary, which includes its share of the subsidiary’s goodwill.