Does recoverable amount mean the same under Impairments under Long lived asset and Goodwill?

CFA Level II
#1

I found the definition for recoverable amount= the greater of “fair value less any selling cost” and the “value in use” under Long lived asset. (IFRS).

Under Goodwill impairment, Kaplan does not mention anything extra.

Just waant to confirm, does the recoverable amount mean the same thing under both goodwill and long lived asset impairment? Thank you!

#2

Anyone?

#3

There is no recoverable amount in goodwill.

Basically you test for impairment (the lost in market value)

Under IFRS you test the fair value vs the carring value of the “cash generating unit” and downgrade the value to it.

Under US GAAP 1 you test it as in IFRS, if there is a indication of a loss; compute a new goodwill for that “reporting unit” and donwgrade the current one to the new value.

I hope this helps

Snah

#4

Thanks for your response!

Take a look at Kaplan page 77 in the accounting book.

Under IFRS, testing for impairment involves a single step approach. If the carrying amount of the cash generating unit (where the goodwill is assigned) exceeds the RECOVERABLE AMOUNT, an impairment loss is recognized.

Also, the reason why I asked this question is because in Volume 2 Kaplan Mock exam 2 Morning Session question 24. They listed the “recoverable amount” so that is why I want to double check to see if this is the same recoverable amount for Long Lived Asset as well.

Thanks,

#5

Maybe is just a conceptual thing, but Im sure it refers to fair value (Market value), could be the recoverable amount in the market.

#6

IFRS always use the the term recoverable amount by any kind of impairment.

In the case of GW a recoverable amount means fair value of sub called cash generating unit on IFRS.

Don’t let those terms to confuse you, just remember impairment rules, nothing else, nothing more.

#7

Im going to Zagreb / dubrovnick in 90 days to pre-celebrate with you

#8

I have seen it in a report of GW impairment…didnt study the report thoroughly but remember that it is the value in use…PV of the future cash flows of cash generating unit.

#9

Glad to hear. Then we will celebrate together.

#10

General rule in IFRS. Recoverable amount = higher of (fair value - cost of sells) and value in use (DCF). Regarding GW I am not sure that value in use would be used. If it will be, then general rule above, maximum of both mentioned values shoul be used. There are many details in real situations but, probably must not be tested.

#11

This is good to know! Thanks all for the clarifications!