Halim Group: goodwill, impairment and a request that raises an ethical issue

Tick each point that your answer made clearly and only once. Points here are this site's own. A real examiner may accept other valid points.

• Goodwill is the consideration plus non-controlling interest less the fair value of identifiable net assets.
• Fair value method: 900,000 + 280,000 - 1,000,000 = $180,000.
• Proportionate method: non-controlling interest is 25% x 1,000,000 = 250,000.
• Proportionate method goodwill: 900,000 + 250,000 - 1,000,000 = $150,000.
• The difference of $30,000 is goodwill attributable to the non-controlling interest, which is recognised only under the fair value method.

Marks counted: 0 of 5

Tick each point that your answer made clearly and only once. Points here are this site's own. A real examiner may accept other valid points.

• Fair value method: carrying amount including goodwill = 1,050,000 + 180,000 = $1,230,000.
• Impairment loss = 1,230,000 - 1,090,000 = $140,000, which is below goodwill and is all allocated to goodwill.
• Goodwill after impairment is 180,000 - 140,000 = $40,000.
• Proportionate method: goodwill is grossed up to 150,000 / 0.75 = $200,000 before the test.
• Carrying amount = 1,050,000 + 200,000 = $1,250,000 and the total loss is $160,000, of which the group recognises 75%, which is $120,000.
• The loss is charged to group profit or loss and shared with the non-controlling interest under the fair value method (25%), and the impairment cannot be reversed for goodwill.

Marks counted: 0 of 6

Tick each point that your answer made clearly and only once. Points here are this site's own. A real examiner may accept other valid points.

• Unrealised profit = 80,000 x 25% = $20,000.
• The profit is eliminated from group profit and from consolidated inventory.
• Because Sabir Co is the seller, the adjustment is shared with the non-controlling interest, which bears 25%, that is $5,000.

Marks counted: 0 of 3

Tick each point that your answer made clearly and only once. Points here are this site's own. A real examiner may accept other valid points.

• The request is to avoid an impairment loss that the standard requires, which is a breach of integrity and of professional behaviour.
• There is a self-interest threat for the director (bonus and covenant) and an intimidation threat for the accountant as a subordinate.
• The result would be misleading to lenders and the non-controlling shareholders, who rely on the financial statements.
• Explain that IAS 36 requires the test and the loss, and that there is no discretion to avoid it.
• Document the matter and the advice given, and discuss it with the finance director first.
• If not resolved, escalate to the audit committee or those charged with governance, seek professional advice, and consider resignation if unable to prevent the misstatement.

Marks counted: 0 of 6