Abstract

This study analyzes the principle of goodwill impairment test based on cash- generating unit under K-IFRS 1136 and indicates the a problem of inconsistency on the measurement requirement between K-IFRS 1136 and other standards, damaging the reliability of goodwill impairment loss. Under K-IFRS 1136, impairment test for all assets and cash-generating unit including goodwill are integrated into one to ensure the reliability of impairment loss on goodwill. The Standard specifies that an entity shall assess whether there is any indication that an asset may be impaired for all assets and cash-generating unit before impairment test of goodwill and if any indication exists, the entity shall estimate the recoverable amount of the asset. And then the same measurement basis, a recoverable amount, applies to the impairment test on the cash-generating unit containing goodwill. The objective of these standards is to ensure that the unrecognized impairment losses for the individual assets on book should not be included in the recoverable amount for the cash-generating unit containing goodwill. If so, impairment loss of individual asset is recognize as impairment loss of goodwill and the reliability of impairment information is deteriorated. This problem comes up when the asset not applied by K-IFRS 1136 is included in the cash-generating unit. This study shows it with the case that the impairment test for the cash-generating unit consists of mainly loan and goodwill for bank. Under K-IFRS 1139, the loss for the individual loan is measured by an incurred loss model, but under K-IFRS 1136, the future cash flows of loan estimating the recoverable amount of cash-generating unit may be measured by and expected loss model. In this is the case, the amount caused by the difference of impairment measurement basis for loan recognized as the impairment loss for goodwill. This is undesirable for the perspective of information usefulness and the purpose of the impairment test. The measurement basis of impairment for the same asset should be consistent. This study differs from the existing papers discussed the overall procedures and general problems of impairment test in that it focuses on the measurement issue relating to the inconsistencies of IFRS. The paper also provide the theoretical background and practical suggestions to help the financial statement preparers, auditors and users for their better decisions.

Keywords

• Impairment Loss
• Goodwill
• Cash-generating Unit
• Reliability
• K-IFRS 1136

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