entity a prepares its financial statements for annual reporting periods ending on 31 612428

Testing for impairment of goodwill allocated in the period after acquisition after the annual impairment testing date

Entity A prepares its financial statements for annual reporting periods ending on 31 December. It performs its annual impairment test for all cash-generating units (CGUs) to which it has allocated goodwill at 30 September.

On 31 October 2011, Entity A acquires Entity B. Entity A completes the initial allocation of goodwill to CGUs at 31 October 2012, before the end of the annual reporting period on 31 December 2012. Therefore, Entity A does not allocate the goodwill until after its annual date for testing goodwill, 30 September 2012.

There are no indicators of impairment of goodwill at 31 December 2012. If there is any such indicator, Entity A is required to test goodwill for impairment at that date, regardless of the date of its annual impairment test. At 31 December 2011, the entity had not yet allocated its goodwill and did not test it for impairment, because there were no impairment indications at that time). During 2012, Entity A receives the information it was seeking about facts and circumstances that existed as of the acquisition date, but it does not finalise the fair values assigned to Entity B’s net assets (and therefore the initial amount of goodwill) until 31 October 2012. IAS 36 requires Entity A to allocate the goodwill to CGUs by the end of the financial year. It does this by December 2012.

In this case, at the time of carrying out its annual impairment tests at 30 September 2012, Entity A has not yet allocated the goodwill relating to Entity B, therefore no impairment test of that goodwill should be carried out at that time. When it does allocate the goodwill in December, the requirement to perform an impairment test for the CGUs to which this goodwill is allocated does not seem to be applicable since the goodwill does not relate to a business combination during the current annual period. It actually relates to a business combination in the previous period; it is just that it has only been allocated for impairment purposes in the current period. Nevertheless Entity A should perform an updated impairment test for the CGUs to which this goodwill is allocated for the purposes of its financial statements for the year ended 31 December 2012 since this would seem to be the intention of the IASB. Not to do so, would mean that the this goodwill would not be tested for impairment until September 2013, nearly 2 years after the business combination.