Question

1. Explaining the accounting treatment for the impairment of Goodwill and Infinite-life Intangibles (other than goodwill).

Answer 1

As per IAS36

Impairment loss refers to difference between the carrying value of the asset in the books of account and its recoverable amount when the carrying amount exceeds its recoverable amount .Then the entity shall recognise an impairment loss.

Goodwill shall be tested for impairment anually.The carrying amount of the asset shall not be less than the highest of :

• Fair value less cost of disposal(if measurable)
• Value in Use
• Zero

Any impairment loss allocated shall reduce the carrying value of the goodwill of assets belonging to the cash generating Unit to which the asset belongs and then reduce the other assets on pro rata basis.

Accounting entry shall be

Impairment loss A/c(Debit)

To Goodwill A/c

(Being the impairment loss on the asset recognised)

At the end of the yaer

P&L A/c (debit)

To impairment Loss

The impairment loss once recognised can be reversed as well if the conditions at the recognition no longer exist.However reversal of loss on goodwill is prohibited as per IFRS.

Indefinite useful life asset

The recoverable amount of the assets having indefinite life must be assessed each year and impairment has to be tested anually whether or not there are indications for impairment. If impairment has ocurred then impairment has to be recognised as aloss like any other assets.

Impairment loss A/c(Debit)

To Asset A/c

(Being the impairment loss on the asset recognised)

At the end of the yaer

P&L A/c (debit)

To impairment Loss

Unless the asset has been earlier revlaued upward, it is charged to profil or loss , Otherwise it shall be treated as revaluation decrease.

RevaluationSurplus A/c DEbit

To Impairment loss A/c