Questions in ED 3

Question 8 - Goodwill

The Board confirmed its position in ED3 that goodwill acquired in a business combination is an asset and should be recognised as such (10:1). The Board reaffirmed that the goodwill should not be amortised after initial recognition. Instead, it should be accounted for at cost less accumulated impairment losses.

Question 6 - Reversals of impairment losses for goodwill The Staff noted that the comment letters equally reported two diverged view. The Board agreed (11:0) that reversals of impairment losses recognised for goodwill should be prohibited.

Question 3 - Measuring value in use

Measurement aspect

Most comment letters agreed with the proposal under ED 3. Therefore, the Board agreed not to modify Paragraph 25A of the Exposure Draft of Proposed Amendments to IAS 36 and to retain the following elements to calculate the asset's value in use:

• an estimate of the future cash flows the entity expects to derive from the asset.
• expectations about possible variations in the amount and/or timing of those future cash flows.
• the time value of money, represented by the current market risk-free rate of interest.
• the price for bearing the uncertainty inherent in the asset.
• other factors, such as illiquidity, that market participants would reflect in pricing the future cash flows the entity expects to derive from the asset.

Regarding the Appendix B (guidance), the Board agreed to add additional guidance to clarify the requirements for the determination of cash flows. The staff will come back with a draft paper at next meeting.

Pre-tax cash flow and pre-tax rate

Many comment letters noted that this requirement leads to system issues and the Board asked the staff to come back with analysis if post-tax is used.

Question 5 - Determining whether goodwill is impaired

The Board confirmed its position that the recoverable amount of a CGU to which goodwill has been allocated should be measured as the higher of the unit's value in use and net selling price.

Many comment letters reported the difficulty and cost of the two step approach proposed in ED3 method. The Board agreed (vote 10-1) to eliminate the second step. Therefore, goodwill shall be included in the cash generating unit it belongs to and impairment measurement as the difference between the CGU recoverable amount and CGU carrying amount. That CGU shall be reviewed for impairment annually or when triggered if sooner.

Question 1 - Frequency of impairment tests

The Board decided that each CGU to which goodwill belongs shall be tested for impairment annually. The test should be done at least once a year at the same period.

Question 4 - Allocating goodwill to cash-generating units

The Board concluded that the final Standard should clarify that 'the lowest level at which management monitors returns on its investment' should be interpreted with judgement. In no case should an impairment be reversed in consolidation based on a higher assessment done at a consolidated basis. The Board also confirmed that the CGU should not be higher than the primary or secondary segments.