Question 1

Compare and contrast the goodwill impairment test under IFRS and accounting standards for private enterprises (ASPE).

Accepted Answer

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Question 2

Proudfoot Ltd. acquired all the shares of Jacob Ltd. several years ago. In conducting its goodwill impairment test for the current year, Proudfoot has determined that there has been an impairment related to revalued assets. On Proudfoot's consolidated financial statements, where should this impairment be reported?

A)As part of profit or loss
B)As part of other comprehensive income
C)As an adjustment to retained earnings
D)As a separate amount under shareholders' equity

B

Accepted Answer

The impairment of revalued assets should be reported as part of other comprehensive income because it is a non-operating loss that does not affect the company's net income.

Question 3

For private enterprises that have acquired goodwill in a business combination, how often should goodwill be tested for impairment?&#10;A)At least once a year&#10;B)At least once every two years&#10;C)Whenever the parent company deems it necessary&#10;D)Whenever there is a change in circumstances

Accepted Answer

Goodwill should be tested for impairment whenever there is a change in circumstances that indicates the carrying value may not be recoverable. This is in line with accounting standards that require impairment testing when there are indicators of impairment.

Question 4

How should goodwill acquired in a business combination be allocated?&#10;A)Proportionately to assets&#10;B)Proportionately to fair-value increments&#10;C)To cash-generating units&#10;D)It is not allocated.

Accepted Answer

Goodwill acquired in a business combination should be allocated to the cash-generating units (CGUs) that are expected to benefit from the combination, which may not necessarily be in proportion to the fair-value increments of the assets. This is because goodwill represents the future economic benefits that are not individually identifiable, and so the allocation should be based on the expected performance of the CGUs after the combination.

Question 5

Under IFRS, how often should goodwill acquired in a business combination be tested for impairment?&#10;A)Whenever there is an indication of impairment&#10;B)Whenever there is a change in circumstances in the business&#10;C)At least once a year&#10;D)At least once every two years

Accepted Answer

Goodwill acquired in a business combination must be tested for impairment at least annually under IFRS.

Question 6

For private enterprises that have acquired goodwill in a business combination, which of the following is considered a change of circumstances for purposes of testing for goodwill impairment?&#10;A)A large unfavourable income tax reassessment&#10;B)Sale of a capital asset for a small loss&#10;C)A major competitor has ceased operations&#10;D)Retirement of the subsidiary's operations manager

Accepted Answer

A large unfavourable income tax reassessment is considered a change of circumstance for purposes of testing for goodwill impairment because it can significantly affect the company's financial performance and therefore, the value of goodwill.

Option B is not considered a significant change of circumstance as it only represents a small loss on a single capital asset.

Option C may represent a positive change in the market, but it may not necessarily impact the value of goodwill as it depends on several other factors.

Option D relates to an internal personnel change and is not considered a change of circumstance for the purposes of testing for goodwill impairment.

Deck 4: Appendix B: Wholly Owned Subsidiaries: Reporting Subsequent Acquisitions