Background to the proposals in the Exposure Draft

BC160 The Exposure Draft proposed a two‑step approach for impairment testing goodwill. The first step involved using a screening mechanism for identifying potential goodwill impairments, whereby goodwill allocated to a cash‑generating unit would be identified as potentially impaired only when the carrying amount of the unit exceeded its recoverable amount. If an entity identified the goodwill allocated to a cash‑generating unit as potentially impaired, an entity would then determine whether the goodwill allocated to the unit was impaired by comparing its recoverable amount, measured as the ‘implied value’ of the goodwill, with its carrying amount. The implied value of goodwill would be measured as a residual, being the excess of:

(a) the recoverable amount of the cash‑generating unit to which the goodwill has been allocated, over

(b) the net fair value of the identifiable assets, liabilities and contingent liabilities the entity would recognise if it acquired the cash‑generating unit in a business combination on the date of the impairment test (excluding any identifiable asset that was acquired in a business combination but not recognised separately from goodwill at the acquisition date).