Ida U.S. Operations:
Ida Inc. (Ida) is a manufacturing company with operations in the United States and Spain. Ida is a U.S. subsidiary of a U.K. entity and prepares its financial statements in accordance with U.S. GAAP for reporting to its U.S.-based lender and in accordance with IFRS in reporting to its parent. Ida owns and operates a commercial building that at year-end 2010 represents a a cash-generating unit (CGU) under IFRS and a long-lived asset classified as held and used under U.S. GAAP. One of Ida’s competitors sold its commercial building for an amount significantly less than its asking price in December 2010. The competitor’s building is located across the street from Ida’s building, has approximately the same square footage,
GAAP Reporting for Goodwill Impairment Under GAAP reporting rules “the first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill” (ASC 350-20-35-4). ASC 350-20-35-6 states that if the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. Ida’s reporting unit fair value is equal to $2,100,000 and its carrying value is equal to $2,200,000 so impairment testing is required. “If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that excess. The loss recognized cannot exceed the carrying amount of goodwill (ASC 350-20-35-11). The implied fair value of goodwill is the excess of the fair value of an entity over the amounts assigned to its assets and liabilities. Since the carrying values of Ida’s assets and liabilities are larger than the fair value of the company then Ida should report an impairment loss for 2010. The goodwill should be reduced by $100,000 to make the carrying value Ida’s assets and liabilities equal its fair value. IFRS Reporting for Goodwill Impairment Under IFRS reporting rules goodwill should be tested for impairment annually (IAS 36.90). IAS 36.104 states, “Impairment loss shall