When deciding which units should have goodwill allocated to them consideration

When deciding which units should have goodwill

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When deciding which units should have goodwill allocated to them, consideration should be given to how internal management monitors the goodwill. Para 80 goodwill should be allocated to the lowest level at which management monitors the goodwill. When the business combination occurred,
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the acquirer would have analysed the earning capacity of the entity it proposed to acquire, and would have equated aspects of goodwill to various cashgenerating units. 15.5.1 Impairment testing of goodwill. A cash-generating unit that has goodwill allocated to it must be tested for impairment annually or more frequently if there is an indication the unit may be impaired (IAS 36 paragraph 90). As with other impairment tests, this involves comparing the carrying amount of the unit's assets, including goodwill, with the recoverable amount of the unit's assets. If the recoverable amount > the carrying amount, there is no impairment loss. In particular, there is no impairment of goodwill. The goodwill balance remains unadjusted; that is, it is not reduced due to impairment loss. If the carrying amount exceeds the recoverable amount, there is an impairment loss. IAS 36 Impairment loss must be allocated to reduce the carrying amount of the assets of the unit, or group of units, in the following order: 1. Reduce the carrying amount of any goodwill allocated to the cash-generating unit. 2. Then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. These reductions in carrying amounts are treated as impairment losses on the individual assets of the unit and recognised as any other impairment losses on assets. In allocating an impairment loss in accordance with paragraph 104, an entity shall not reduce the carrying amount of an asset below the highest of: a. its fair value less costs of disposal (if measurable); b. its value in use (if determinable); and c. zero. The amount of the impairment loss that would otherwise have been allocated to the asset shall be allocated pro rata to the other assets of the unit (group of units). Timing for impairment tests . Goodwill has to be tested for impairment annually, test can be performed at any time of the year, provided its perfromed at the same time every year. It is not necessary for all cash-generating units to be tested for impairment at the same time. If there are two units being tested for impairment, one being a smaller cash-generating unit within a larger unit and the larger unit contains an allocation of goodwill, it is necessary to test the smaller unit for impairment first. This ensures that, if necessary, the assets of the smaller unit are adjusted before the testing of the larger unit. Similarly, if the assets of a cash-generating unit containing goodwill are being tested at the same time as the unit, then the assets must be tested first.
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