Describe impairment testing of goodwill and CGUs.

• A. Test goodwill annually only if impairment indicators exist.
• B. Impairment testing is not required for CGUs.
• C. Allocate goodwill to CGUs; test annually for impairment; compare carrying amount to recoverable amount; recognize impairment if carrying amount exceeds recoverable amount.
• D. Test each asset separately rather than CGU.

Answer: (C)

Goodwill impairment testing works by tying the goodwill to the cash-generating units that are expected to benefit from it, and then checking those units at least once a year (and more often if there are impairment indicators). You carry out the test by comparing the CGU’s carrying amount (which includes the goodwill allocated to that CGU) with its recoverable amount—the higher of value in use and fair value less costs of disposal. If the carrying amount exceeds the recoverable amount, an impairment loss is recognised for that CGU. The loss first reduces the carrying amount of the goodwill allocated to the CGU, and any remaining amount reduces other assets within that CGU. Impairment of goodwill is not reversible, and impairment testing is performed at the CGU level, not on individual assets.