Impairment of a CGU with non-controlling interest and goodwill
Halden Group owns 80% of North Ltd. At 31 December 20X5, North is a CGU with identifiable net assets of $700m. Goodwill recognized on consolidation is $160m, being Halden's 80% share; the NCI was measured at its proportionate share of North's net assets. North's recoverable amount is $600m. The CGU's assets include a building with fair value less costs of disposal of $250m and a patent with fair value less costs of disposal of $90m. Halden's impairment policy allocates losses first to goodwill, then pro rata to other assets. North has no separate cash inflows; it is the smallest group of assets generating independent cash flows. In 20X5 demand fell and North's revised plan showed lower cash flows. Halden also has a $40m loan receivable from North that is eliminated on consolidation.
1. Calculate the impairment loss and show how it should be allocated between goodwill, other assets, Halden and the NCI.
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Gross-up for NCI: Because NCI was measured at proportionate share, recognised goodwill ($160m) is only Halden's 80%. Notional gross goodwill = $160m / 80% = $200m. Notional gross carrying amount = $700m + $200m = $900m. Recoverable amount = $600m. Notional gross impairment = $300m.
Allocation: Allocate $200m to notional goodwill (not more than gross goodwill), leaving $100m for the other assets pro rata to their carrying amounts, subject to no asset being written below its fair value less costs of disposal. The building and patent have FVLCD of $250m and $90m; if their carrying amounts exceed those floors, the allocation is restricted and any excess is reallocated to the remaining assets.
Recognised impairment: Goodwill impairment recognised = Halden's 80% × $200m = $160m. Other assets impairment = $100m, of which NCI bears 20% ($20m). Total impairment = $260m. Parent profit is charged $240m ($160m goodwill + $80m assets); NCI is charged $20m. NCI is not charged a share of the notional goodwill impairment because NCI goodwill was never recognised.
2. Explain how the answer would differ if the NCI had been measured at fair value of $150m at acquisition.
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If NCI had been measured at fair value of $150m, total goodwill would be $160m + $150m = $310m. Carrying amount = $700m + $310m = $1,010m. Recoverable amount = $600m, so impairment = $410m. Allocate $310m to goodwill and $100m to other assets. The full $310m goodwill impairment is recognised: $160m against Halden's goodwill and $150m against NCI goodwill. The $100m asset impairment is shared 80:20, so Halden bears $80m and NCI $20m. Total: Halden $240m, NCI $170m, total $410m.
The parent's profit charge is the same $240m in this example, but total assets and NCI are lower under fair-value NCI because the NCI's goodwill is recognised and impaired. The choice of NCI measurement therefore affects NCI and total equity, not the parent's share of the impairment when the parent's goodwill is fully impaired.