In goodwill impairment, under IFRS, we have recoverable amount of cash generating unit. Now if this recoverable amount is greater than the carrying value, an impairment loss is recognized. My question is: What is this recoverable amount? How is it different from fair value? Why, if it is higher, does a goodwill impairment occur? If we are able to recover more than the carrying value, it should mean that its value is greater than the one on balance sheet and we should make a profit. Please explain with examples if possible.
Two things. 1. If you read the footnotes on that page there is a definition of what Recoverable Amount is. 2. This is covered in the errata: Study Session 5, Reading 21: On p. 47, in the ninth line of the third paragraph of Section 6.4.5, change greater to less: “ …if the recoverable amount of the cash-generating unit is less than its carrying value.”
Thanks for that. What is errata? And how do you access it?
yeah, that didnt sound right, recoverable amount exceeding carrying value would not be an indication of impairment.
I_Passed_Level_1 Wrote: ------------------------------------------------------- > yeah, that didnt sound right, recoverable amount > exceeding carrying value would not be an > indication of impairment. We better begin to take you serious. -:0) You are correct! Recoverable amount (Net Realisable) or Value in Use greater than Carrying Value of Asset does not in any way indicate impairment. Impairment is the exact opposite of the inequality.
^ Dude, how’s your studying going?