BC137 The previous version of IAS 36 required goodwill to be tested for impairment as part of impairment testing the cash‑generating units to which it relates. It employed a ‘bottom‑up/top‑down’ approach under which the goodwill was in effect tested for impairment by allocating its carrying amount to each of the smallest cash‑generating units to which a portion of that carrying amount could be allocated on a reasonable and consistent basis.

BC138 Consistently with the previous version of IAS 36, the Exposure Draft proposed that:

(a) goodwill should be tested for impairment as part of impairment testing the cash‑generating units to which it relates; and

(b) the carrying amount of goodwill should be allocated to each of the smallest cash‑generating units to which a portion of that carrying amount can be allocated on a reasonable and consistent basis.

However, the Exposure Draft proposed additional guidance clarifying that a portion of the carrying amount of goodwill should be regarded as capable of being allocated to a cash‑generating unit on a reasonable and consistent basis only when that unit represents the lowest level at which management monitors the return on investment in assets that include the goodwill. That cash‑generating unit could not, however, be larger than a segment based on the entity’s primary reporting format determined in accordance with IAS 14 Segment Reporting.