Consolidation Subsequent to
Acquisition
 Passage of time affects revaluations of
subsidiary assets and liabilities
 Triggers effects on
 Income statement amounts
 The investment account on the parent’s
books due to use of the complete equity
method
©Cambridge Business Publishing, 2010
1
2
Complete Equity Method
 Used internally by parent company
 Differs from the equity method used for
external reporting
Internal Reporting
Impairment losses
on indefinite life
intangibles
including goodwill
Unconfirmed
profits on
downstream sales
©Cambridge Business Publishing, 2010
External Reporting
Equity in net
income reduced
for impairment
losses
No equity in
net income
adjustment for
impairment
All unconfirmed
downstream
profits are
deducted
Deducted to the
extent of the
investor’s
ownership interest
Goals of the Consolidation Elimination
Process
 Eliminates equity method income on the
parent’s books and declared dividends on the
subsidiary’s books
 Eliminates stockholders’ equity accounts on
the subsidiary’s books against the investment
account on the parent’s books
 Adjusts the subsidiary’s assets and
liabilities for remaining acquisition date
revaluations and eliminate the remainder of the
investment balance
 Adjusts reported expenses for current year
revaluation write-offs
©Cambridge Business Publishing, 2010
3
4
Eliminating Entries
Current –
Eliminate the current year
equity method entries
Equity –
Eliminate subsidiary’s
beginning-of-year equity
balances
Revalue – Recognize the beginning-ofcurrent-year fair value
revaluations
Write-Off – Recognize current year
revaluation write-offs
©Cambridge Business Publishing, 2010
Consolidation Process Example
Suppose Time Warner pays $75 million for Midwest
Cable on January 1, 2010. Midwest’s book value is $10
million. Book and fair values are the same except for
equipment with fair value $15 million higher than book
value. Midwest has unreported identifiable intangibles
valued at $2 million.
Acquisition analysis:
Acquisition cost
Book value of Midwest Cable
Cost in excess of Midwest Cable's book value
Differences between fair value and book value:
Equipment
Identifiable intangibles
Goodwill
©Cambridge Business Publishing, 2010
$75,000,000
10,000,000
65,000,000
$15,000,000
2,000,000
17,000,000
$48,000,000
5
6
Consolidation Process Example
continued
Midwest reports net income of $5 million and declares and
pays cash dividends of $1 million to Time Warner in 2010.
Revalued equipment has a remaining life of 20 years.
Identifiable intangibles have 4 years of remaining life.
Straight-line depreciation and amortization is used. Goodwill
is not impaired.
Complete equity method:
Midwest Cable's reported income for 2010
Adjustments for revaluation write-offs:
Equipment ($15,000,000/20)
Identifiable intangibles ($2,000,000/4)
Equity in income of Midwest Cable
©Cambridge Business Publishing, 2010
$5,000,000.
(750,000)
(500,000)
$3,750,000
7
Consolidation Process Example
continued
Time Warner’s books
To record equity in net income for 2010:
Investment in Midwest Cable
3,750,000
Equity in income of Midwest Cable
3,750,000
To record dividends received in 2010:
Cash
Investment in Midwest Cable
1,000,000
Investment in Midwest Cable
75,000,000
3,750,000
1,000,000
77,750,000
©Cambridge Business Publishing, 2010
1,000,000
8
Consolidation Process Example
continued
Eliminating entries at December 31, 2010:
To eliminate equity in net income on the parent's books,
dividends on the subsidiary's books, and restore the
investment account to its beginning-of-year value:
(C) Equity in income of Midwest Cable
Dividends
Investment in Midwest Cable
3,750,000
1,000,000
2,750,000
To eliminate the subsidiary's beginning-of-year equity
accounts against the investment account:
(E) Common stock, par
Additional paid-in capital
Retained earnings, January 1
Investment in Midwest Cable
©Cambridge Business Publishing, 2010
100,000
400,000
9,500,000
10,000,000
9
Consolidation Process Example
continued
Eliminating entries at December 31, 2010:
To recognize the beginning-of-year revaluations and
eliminate the remainder of the investment account balance:
(R) Plant and equipment, net
Identifiable intangibles
Goodwill
Investment in Midwest Cable
15,000,000
2,000,000
48,000,000
65,000,000
To write off equipment and identifiable intangibles
revaluations for the current year, by recognizing additional
depreciation and amortization expense:
(O) Operating expenses
Plant and equipment, net
Identifiable intangibles
©Cambridge Business Publishing, 2010
1,250,000
750,000
500,000
Consolidation Working Paper for
Time Warner and Midwest Cable
10
Exhibit 4.1
©Cambridge Business Publishing, 2010
Consolidated Financial Statements
for Time Warner and Midwest Cable
©Cambridge Business Publishing, 2010
11
Consolidated Financial Statements
for Time Warner and Midwest Cable
©Cambridge Business Publishing, 2010
12
13
Complete Equity Method
 Also known as ‘one-line consolidation’
Parent’s net income
=
Consolidated net income
Parent’s
retained earnings
=
Consolidated
retained earnings
 Equivalence of parent’s net income and
consolidated net income
©Cambridge Business Publishing, 2010
Exhibit 4.2
14
One-Line Effects on Investor’s Books
Investor’s Balance Sheet
Assets:
Investment in subsidiary…….$ xx
Investor’s Income Statement
Other revenue:
Equity in income………..…….$ xx
©Cambridge Business Publishing, 2010
Investee’s
assets and
liabilities
Investee’s
revenues
and
adjusted
expenses
15
Revaluations in Subsequent Years
 Requires recognition of write-offs of
reported revaluations over time
 Inventories
 Write off in year of reported sale
 Plant and equipment
 Write off each year of useful life
 Previously unreported intangibles
 Write off each year of useful life, or if impaired
 Long-term debt
 Write off premium/discount over remaining life
 Reported in eliminating entry ‘O’
©Cambridge Business Publishing, 2010
16
Revaluations of Inventories
The book value of a subsidiary’s inventory acquired on January 1,
2011 is $800,000, with its fair value at $1 million. FIFO is used.
Subsidiary’s accounting records:
To record sale of beginning inventory during 2011:
Cost of goods sold
Inventory
800,000
800,000
Calculate the adjustment to be made:
Cost of goods sold on consolidated income statement
Cost basis of beginning inventory
Eliminating adjustment on working paper
$1,000,000
800,000
$ 200,000
Consolidation working paper:
Eliminating entry to revalue cost of sales to acquisition
cost:
(O) Cost of goods sold
Inventory
©Cambridge Business Publishing, 2010
200,000
200,000
17
Revaluations of Depreciable Assets
The book value of a subsidiary’s equipment on January 1, 2011
is $50 million, with its fair value at $70 million, with a remaining
useful life of 10 years and no residual value. Straight-line
depreciation is used.
Annual depreciation recorded by subsidiary ($50 M ÷ 10 yrs)
Depreciation at fair value ($70 M ÷ 10 yrs)
Additional depreciation on working paper
$5,000,000
7,000,000
$2,000,000
Consolidation working paper:
Eliminating entry to revalue depreciation to reflect fair value
at date of acquisition:
(O) Depreciation Expense
Plant and equipment, net *
*or accumulated depreciation
©Cambridge Business Publishing, 2010
2,000,000
2,000,000
18
Revaluations of Long-Term Debt
The subsidiary reports $100 million of 5% bonds
payable at January 1, 2011, issued in 2010 at par, and
due on December 31, 2020. The fair value of the bonds
is $90 million on January 1, 2011.
Bond discount amortization:
$10,000,000 ÷ 10 years = $1,000,000
Consolidation working paper:
Eliminating entry to amortize bond discount for 2011:
(O) Interest expense
Bonds payable (or bond discount)
©Cambridge Business Publishing, 2010
1,000,000
1,000,000
Previously Reported Intangibles
With Limited Lives
 Amortized over estimated useful life
 Amortized amount equal to recorded
amount of the asset less estimated residual
value (usually zero)
 Amortization method reflects the pattern in
which the economic benefits are consumed
 Generally straight-line method
Examples: Favorable lease agreements and customer lists
©Cambridge Business Publishing, 2010
19
20
Previously Reported Intangible Assets
with Indefinite Lives
 If no factors appear to limit the intangible
asset’s life, the life is deemed to be
indefinite
 Examples




Brand names
Franchises
Goodwill
Acquired in-process research and
development
©Cambridge Business Publishing, 2010
Impairment Testing for Intangibles
Other Than Goodwill
 If carrying amount of the asset exceeds its
fair value
 Recognize an impairment loss
 Once impairment loss is recorded, no
reversal is allowed for increases in value
 Guided by SFAS 144
©Cambridge Business Publishing, 2010
21
Impairment Testing for Intangibles
Other Than Goodwill
22
Two step process
Step 1: Undiscounted cash flows
expected from the future use of
the asset and its subsequent
disposition
Less Than
Asset’s carrying value?
No
No impairment
©Cambridge Business Publishing, 2010
Yes
Impairment
has incurred
Step 2: Amount of loss =
Book value of intangible asset
less
Present value of the future
cash flows
23
Goodwill
 An indefinite life intangible
 Per SFAS 142, must be regularly tested for
impairment
 Impairment losses reported in the operating
section of the income statement
 If material, reported as a separate line item
 Goodwill has meaning only in the context of
a business unit
 Represents a variety of intangible benefits
connected with that business, beyond its
tangible and identifiable intangible net assets
©Cambridge Business Publishing, 2010
24
Goodwill Impairment
 Testing required at least annually unless
circumstances indicate the likelihood of
impairment is remote
 More frequent testing needed for





A significant downturn in the business climate
Adverse legal or regulatory outcomes
Unanticipated new competition
Loss of key personnel
Expectation that a reporting unit will be sold
©Cambridge Business Publishing, 2010
25
Impairment Testing for Goodwill
Two step process
Step 1: Is fair value of
the reporting unit
Less Than
Carrying value?
Yes
No
No
No impairment
Impairment may
be incurred
Step 2: Estimate implied fair value
of the reporting unit’s goodwill.
Is the implied fair value
Less Than
its carrying amount?
Yes
Write-off is required
©Cambridge Business Publishing, 2010
Impairment is
incurred
Amortization of Specific Intangibles
Example
On January 1, 2012, Primus Telecommunication Group
acquires all of the voting stock of Matrix Internet. Previously
unrecorded intangibles at acquisition are:
Intangible asset (in millions)
Customer Lists
Brand names
Fair Value
$150
240
Useful Life
5 years
4 years
2012 amortization (in millions):
Customer lists
Brand names
Total amortization expense
$150 ÷ 5 = $30
$240 ÷ 4 = $60
$90
Must be assessed for impairment at least annually
©Cambridge Business Publishing, 2010
26
Impairment of Specific Intangibles
Example
27
continued
The following information is provided by Primus at
December 31, 2012:
Intangible asset (in millions)
Total expected future Total expected future
cash inflows,
cash inflows,
undiscounted
discounted
Customer lists
Brand names
$100
200
$80
125
Impairment loss (in millions):
Identifiable
intangible
(in millions)
Book value
Step 1
Step 2
Book value greater Impairment loss =
than undiscounted
Book value less
cash flow?
discounted cash flow
Customer lists $150 - $30 = $120 Yes ($120 > $100) $120 - $80 = $40
Brand names $240 - $60 - $180 No ($180 < $200)
Impairment loss of $40 million must be reported.
©Cambridge Business Publishing, 2010
Impairment of Goodwill Example
Primus Telecommunication Group acquires all of the voting
stock of Matrix Internet with goodwill as follows:
Intangible asset
Goodwill
Fair Value
Useful Life
$3,200 million
Indefinite
Goodwill assigned to Broadband unit
Goodwill assigned to Wholesale Carrier unit
Total goodwill
$1,920 million
1,280 million
$3,200 million
Impairment testing at the end of the year:
Step 1 - Compare the fair value to the book value of each
reporting unit.
Fair value of unit
Book value of unit
Difference
©Cambridge Business Publishing, 2010
Broadband
Wholesale Carrier
$17,600 million.
$8,640 million.
(15,040) million
(8,960) million
$ 2,560 million.
$ (320) million
Goodwill may be impaired
28
29
Impairment of Goodwill Example
continued
Step 2 - Compare fair value of the unit to the fair value of the
identifiable net assets of the unit:
Fair value of Wholesale unit
Fair value of identifiable net assets of Wholesale
Current fair value of goodwill
Carrying amount of goodwill
Difference
$8,640 million
7,520 million
1,120 million
1,280 million
$ 160 million
Goodwill assigned to Wholesale Carrier is impaired by $160 million.
To record amortization expense and impairment losses on
previously unreported intangibles and goodwill for 2012:
(O) Amortization expense
90,000,000
Impairment loss on identifiable intangibles 40,000,000
Goodwill impairment loss
160,000,000
Customer lists
70,000,000
Brand names
60,000,000
Goodwill
160,000,000
©Cambridge Business Publishing, 2010
Consolidation in Subsequent Years
Illustration
IBM buys all of the voting stock of DataFile, Inc. on July
1, 2010 for $25 million cash. DataFile’s book value was
$5.3 million.
Goodwill calculation:
Acquisition cost
Book value of DataFile
Cost in excess of DataFile's book value
Differences between fair value and books value:
Current assets
Plant and equipment;, net
Patents and copyrights
Brand names
Lease agreements
Customer relationships
Long-term debt
Goodwill
©Cambridge Business Publishing, 2010
$25,000,000
5,300,000
19,700,000
$
(300,000)
10,000,000
4,000,000
1,000,000
600,000
3,000,000
(2,000,000)
16,300,000
$ 3,400,000
30
Consolidation in Subsequent Years
Illustration
continued
Exhibit 4.3
Revaluation Write-Off information for DataFile Acquisition:
©Cambridge Business Publishing, 2010
31
Consolidation after One Year
Illustration
continued
DataFile reports income of $3 million and paid dividends
of $400,000 to IBM during its fiscal year ending June 30,
2011.
Equity in income calculation:
DataFile's reported income for fiscal 2011
Adjustments for revaluation write-offs of:
Current assets (cost of goods sold)
Plant and equipment (depreciation expense)
Patents and copyrights (amortization expense)
Brand names (impairment loss)
Lease agreements (amortization expense)
Customer relationships (amortization expense)
Long-term debt (Interest expense)
Equity in income of DataFile
©Cambridge Business Publishing, 2010
$ 3,000,000
300,000
(400,000)
(800,000)
(100,000)
(300,000)
(1,000,000)
500,000
$ 1,200,000
32
Consolidation after One Year
Illustration
33
continued
DataFile reports income of $3 million and paid dividends of
$400,000 to IBM during its fiscal year ending June 30, 2011.
Equity method entries on IBM’s books during fiscal 2011:
To record equity in net income for fiscal 2011:
Investment in DataFile
Equity in income of DataFile
1,200,000
1,200,000
To record dividends received in fiscal 2011:
Cash
Investment in DataFile
Balance in
investment account
©Cambridge Business Publishing, 2010
400,000
400,000
Investment in DataFile
25,000,000
1,200,000
400,000
25,800,000
Consolidation Working Paper after
One Year Illustration
continued
©Cambridge Business Publishing, 2010
34
Exhibit 4.4
Consolidation after One Year
Illustration
continued
Eliminating entries:
To eliminate equity in net income on the parent's books,
dividends on the subsidiary's books, and restore the investment
account to its beginning-of-the year value:
(C) Equity in income of DataFile
Dividends
Investment in DataFile
1,200,000
400,000
800,000
To eliminate the subsidiary's beginning-of-year equity accounts
against the investment account balance:
(E) Common stock, par
Additional paid-in capital
Retained earnings, July 1
Investment in DataFile
©Cambridge Business Publishing, 2010
500,000
2,000,000
2,800,000
5,300,000
35
Consolidation after One Year
Illustration
continued
Eliminating entries:
To recognize the beginning-of-year revaluations and eliminate the
remainder of the investment account balance:
(R) Plant and equipment, net
Patents and copyrights
Brand names
Lease agreements
Customer relationships
Goodwill
Current assets
Long-term debt
Investment in DataFile
©Cambridge Business Publishing, 2010
10,000,000
4,000,000
1,000,000
600,000
3,000,000
3,400,000
300,000
2,000,000
19,700,000
36
Consolidation after One Year
Illustration
continued
Eliminating entries:
To adjust current year cost of goods sold to reflect inventory
revaluation:
(O-1) Current assets
Cost of goods sold
300,000
300,000
To adjust current year depreciation expense to reflect plant and
equipment revaluation:
(O-2) Operating expense (depreciation)
Plant and equipment, net
400,000
400,000
To adjust current year amortization expense to reflect revaluations
of limited life intangibles:
(O-3) Operating expense (amortization)
Patents and copyrights
Lease agreements
Customer relationships
©Cambridge Business Publishing, 2010
2,100,000
800,000
300,000
1,000,000
37
Consolidation after One Year
Illustration
continued
Eliminating entries:
To adjust current year interest expense to reflect long-term debt
revaluation:
(O-4) Long-term debt
Operating expense (interest)
500,000
500,000
To record brand names impairment for the current year:
(O-5) Operating expense (impairment loss)
Brand names
©Cambridge Business Publishing, 2010
100,000
100,000
38
Consolidation after One Year
Illustration
continued
Consolidated financial statements:
©Cambridge Business Publishing, 2010
39
Consolidation after One Year
Illustration
continued
Consolidated financial statements:
©Cambridge Business Publishing, 2010
40
Consolidation after Two Years
Illustration
DataFile reports income of $3.5 million and pays dividends of
$200,000 for its fiscal year ending June 30, 2012. Year-end
impairment testing reveals no impairment loss for brand
names, and $700,000 impairment to goodwill.
Calculation of equity in income of DataFile for 2012:
DataFile's reported income for fiscal 2012
Adjustments for revaluation write-offs of:
Plant and equipment (depreciation expense)
Patents and copyrights (amortization expense)
Lease agreements (amortization expense)
Customer relationships (amortization expense)
Long-term debt (Interest expense)
Goodwill (Impairment loss)
Equity in income of DataFile
©Cambridge Business Publishing, 2010
$ 3,500,000
(400,000)
(800,000)
(300,000)
(1,000,000)
500,000
(700,000)
$ 800,000
41
Consolidation after Two Years
Illustration
42
DataFile reports income of $3.5 million and paid dividends of
$200,000 to IBM during its fiscal year ending June 30, 2012.
Equity method entries on IBM’s books during fiscal 2012:
To record equity in net income for fiscal 2012:
Investment in DataFile
Equity in income of DataFile
800,000
800,000
To record dividends received in fiscal 2012:
Cash
Investment in DataFile
Balance in
investment account
©Cambridge Business Publishing, 2010
200,000
200,000
Investment in DataFile
25,800,000
800,000
200,000
26,400,000
Consolidation after Two Years
Illustration
continued
©Cambridge Business Publishing, 2010
Exhibit 4.5
43
Consolidation after Two Years
Illustration
continued
Eliminating entries:
To eliminate equity in net income on the parent's books,
dividends on the subsidiary's books, and restore the investment
account to its beginning-of-the year value:
(C) Equity in income of DataFile
Dividends
Investment in DataFile
800,000
200,000
600,000
To eliminate the subsidiary's beginning-of-year equity accounts
against the investment account:
(E) Common stock, par
Additional paid-in capital
Retained earnings, July 1
Investment in DataFile
©Cambridge Business Publishing, 2010
500,000
2,000,000
5,400,000
7,900,000
44
Consolidation after Two Years
Illustration
continued
Eliminating entries:
To recognize the beginning-of-year revaluations and eliminate the
remainder of the investment account balance:
(R) Plant and equipment, net
Patents and copyrights
Brand names
Lease agreements
Customer relationships
Goodwill
Long-term debt
Investment in DataFile
©Cambridge Business Publishing, 2010
9,600,000
3,200,000
900,000
300,000
2,000,000
3,400,000
1,500,000
17,900,000
45
Consolidation after Two Years
Illustration
continued
Eliminating entries:
To adjust current year depreciation expense to reflect plant and
equipment revaluation:
(O-1) Operating expense (depreciation)
Plant and equipment, net
400,000
400,000
To adjust current year amortization expense to reflect revaluations
of limited life intangibles:
(O-2) Operating expense (amortization)
Patents and copyrights
Lease agreements
Customer relationships
©Cambridge Business Publishing, 2010
2,100,000
800,000
300,000
1,000,000
46
Consolidation after Two Years
Illustration
continued
Eliminating entries:
To adjust current year interest expense to reflect long-term debt
revaluation:
(O-3) Long-term debt
Operating expense (interest)
500,000
500,000
To record goodwill impairment for the current year:
(O-4) Operating expense (impairment loss)
Goodwill
©Cambridge Business Publishing, 2010
700,000
700,000
47
Consolidation after Two Years
Illustration
continued
Consolidated financial statements:
©Cambridge Business Publishing, 2010
48
Consolidation after Two Years
Illustration
continued
Consolidated financial statements:
©Cambridge Business Publishing, 2010
49
50
IFRS for Acquired Specific Intangibles
 IAS 38 criteria to be reportable
 Intangible must be either separable or
contractual
 Similar to U.S. GAAP
 Generally carried at cost less accumulated
amortization and impairments
 IFRS allows fair value reporting in limited
circumstances
©Cambridge Business Publishing, 2010
Intangibles Reported Using the Cost
Model Under IFRS
 Intangibles with limited lives
Same as U.S.
GAAP
 Amortized over the period the intangible is
expected to produce cash flows
 Amortization methods same as for plant and
equipment
 Estimates used in reporting periodic
amortization must be reviewed regularly
 Estimated changes reflected in future periods only
 Intangibles with indefinite lives
Same as U.S.
GAAP
 Not amortized
 Assumptions must be reassessed each period
©Cambridge Business Publishing, 2010
51
Intangibles Reported Using the Cost
Model Under IFRS
 All identifiable intangibles reported at cost are
subject to impairment testing
 Impairment testing differs from U.S. GAAP
 IAS 36 impairment testing
One-Step Test
Greater of
Asset’s ‘Value-in-use’
(Generally present value of
future expected cash flows)
or
Net market value
(fair value less selling costs)
©Cambridge Business Publishing, 2010
Compared
to
Book value
52
Intangibles Reported Using the Cost
Model Under IFRS Example
53
The following information is provided by Primus at
December 31, 2012:
Intangible asset
(in millions)
Customer lists
Brand names
Total expected
Total expected
Book value future cash inflows, future cash inflows,
undiscounted
discounted
$120
$100
$80
180
200
125
There is no active market for the intangibles.
Impairment loss:
Customer lists
Brand names
Total impairment loss
$120,000,000 – $80,000,000 = $40,000,000
$180,000,000 – $125,000,000 = 55,000,000
$95,000,000
U.S. GAAP impairment loss = $40 million
IFRS impairment loss = $95 million
©Cambridge Business Publishing, 2010
Intangibles Reported Using
Revaluation Model Under IFRS
54
 IAS 38 defines fair value as market value
 Mark-to-market allowed under IFRS
 Limited to intangibles traded in an active market
 Examples: Liquor licenses in some states,
franchise rights
 Increases in value reported directly in equity
 Except for reversals of previously reported
impairment losses
 Decreases in value reported directly in equity
 Except for reductions exceeding previous
increases which are reported in income
©Cambridge Business Publishing, 2010
55
Intangibles Reported Using Revaluation
Model Under IFRS Example
Generic computer software valued at $10 million with an active
trading market is acquired in a business combination on
January 1, 2011. The software has a 5-year estimated life, and
no residual value. Straight-line amortization is used. Fair value
at December 31, 2011 is $12,000,000.
To record amortization on the computer software for 2011:
Annual amortization = $10,000,000 ÷ 5 years = $2,000,000
Amortization expense
Computer software
2,000,000
2,000,000
To revalue the computer software to fair value as of December 31, 2011:
$12,000,000 – [$10,000,000 – $2,000,000] = $4,000,000
Computer software
Revaluation surplus (OCI)
©Cambridge Business Publishing, 2010
4,000,000
4,000,000
56
Intangibles Reported Using Revaluation
Model Under IFRS Example
continued
Fair value at December 31, 2012 is $8,000,000. The adjusted
basis is $12,000,000 fair value at end of 2011.
To record amortization on the computer software for 2012:
Annual amortization = $12,000,000 ÷ 4 years = $3,000,000
Amortization expense
Computer software
3,000,000
3,000,000
To revalue the computer software to fair value as of December 31,
2012:
$8,000,000 – [$12,000,000 – $3,000,000] = ($1,000,000)
Revaluation surplus (OCI)
Computer software
©Cambridge Business Publishing, 2010
1,000,000
1,000,000
57
Goodwill Impairment Under IFRS
Differs from U.S. GAAP in two ways
1.Goodwill is allocated to ‘cash generating
units’ (CGUs), not operating units
2.One step computation of impairment loss
 Book value less fair value of the CGU
 Loss limited to carrying value of goodwill
IFRS impairment loss likely to be
higher than under U.S. GAAP.
©Cambridge Business Publishing, 2010
58
Goodwill Impairment Under IFRS
Primus Telecommunication Group acquires all of the voting
stock of Matrix Internet on January 1, 2012. Information on
December 31, 2012 values is as follows:
Amounts in millions
Broadband internet
Broadband data
Wholesale VoIP
Wholesale data services
Totals
©Cambridge Business Publishing, 2010
Fair value of
Book value Fair value of Book value identifiable net
of goodwill
CGU
of CGU
assets
$
320
1,600
960
320
$3,200
$ 8,000
9,600
4,800
3,840
$26,240
$ 4,800
10,240
5,440
3,520
$24,000
$ 7,040
8,640
4,480
3,040
$23,200
59
Goodwill Impairment Under IFRS
continued
Comparing each unit’s book value with its fair value:
(in millions)
Fair value of CGU
Book value of CGU
Impairment?
Impairment loss
Broadband Broadband Wholesale
Internet
Data
VoIP
$8,000
$9,600
$4,800
4,800
10,240
5,440
No
Yes
Yes
$640
$640
Wholesale
Data
Services
$3,840
3,520
No
-
Book value exceeds fair value so impairment loss
of $1,280,000,000 must be recognized
U.S. GAAP impairment loss = $160,000,000
IFRS impairment loss = $1,280,000,000
©Cambridge Business Publishing, 2010