IAS 36 'Impairment of Assets' assesses when and how to
conduct an impairment review. It contains complex areas of guidance
and therefore
is challenging to apply in practice.
The articles in our 'Insights into IAS 36' series have been written to assist preparers of financial statements and those charged with the governance of reporting entities understand the requirements set out in IAS 36, and revisit some areas where confusion has been seen in practice.
This article is the third of a three-part series on cash-generating units (CGUs). In this article we discuss how to allocate goodwill to CGUs, which follows articles on how to identify CGUs and how to allocate assets to CGUs.
Identifying CGUs is a critical step in the impairment review and can have a significant impact on its results. That said, the identification of CGUs requires judgement. The identified CGUs may also change due to changes in an entity's operations and the way it conducts them.
After the entity identifies its CGUs, it must determine which assets belong to which CGUs, or groups of CGUs. The basis of allocation differs for:
- operational assets
- corporate assets, and
- goodwill.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.