In the text on page 47, the book claims “An impairment loss is recognized if the recoverable amount of the cash-generating unit is greater than its carrying value.” The proceeding IFRS example on page 48 shows an impairment loss of 100,000 with the recoverable amount valued at 1,300,000 and a carrying amount of 1,400,000. Something seems incorrect here. Can somebody please elaborate which is correct?
I don’t know what text you are taking that from but you are correct. An impairment loss is recognised if the recoverable amount of the cash generating unit is LESS than the carrying value. The example they provide you is correct. The logic is quite simple. The goodwill is originally stated at 1.4m because it was originally envisaged that the asset would generate this amount of value over the life of that asset. However, if say something were to happen such that the asset could only produce 1.3m of value to the company over the remaining life then the asset is clearly overstated by 100k.
He is talking about the CFAI text, volume 2. I saw the same error about a week ago. I caught the same error. Clearly it should be tagged in the errata, if it isn’t already. Anyone know offhand the best way to tell CFAI about such mistakes?
For reference - the right statement on Pg 43 of the 2009 text is: If the carrying amount of the unit EXCEEDS the recoverable amount of the unit - the entity recognizes an impairment loss on the profit and loss statement.