# AS 28: Goodwill in CGU Impairment Testing

## Why Goodwill Cannot Be Tested Individually

Goodwill does not generate independent cash flows → individual impairment test is not possible.

Solution: Allocate goodwill to CGUs before testing.

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## Case 1 — Goodwill Is Allocable in a Known Ratio

Use Bottom-up Approach only:

1. Allocate goodwill to each CGU in the given ratio

2. For each CGU: Total CA = operating assets + allocated goodwill

3. Compare with CGU's RA → compute IL

4. Allocate IL: Goodwill absorbs first, then remaining assets in ratio of CA

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## Case 2 — Goodwill Cannot Be Allocated to Any CGU

Use Two-stage (Bottom-up + Top-down) approach:

### Stage 1 — Bottom-up: Test each CGU without goodwill

### Stage 2 — Top-down: Combine all CGUs + Total Goodwill

Revised CAs from Stage 1 + Full Goodwill CA = Combined CA
Compare Combined CA with Combined RA
If combined IL exists at this level → allocate to Goodwill first
Any remaining IL after extinguishing GW → allocate to other assets in ratio of CA

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## Priority Rule (Both Cases)

> Goodwill always absorbs impairment before any other asset in the CGU.

Worked example

### Example 1

Case 1 — Goodwill Allocable (GW split 25% CGU1 : 75% CGU2):

CGU1 (Laptop, Camera, iPad + GW @ 25%):

RA of CGU1 = 18L → IL = 4L

Allocation: Goodwill (2L) absorbs 2L first; remaining 2L allocated to Laptop/Camera/iPad in ratio 10:5:5:

### Example 2

Case 2 — Goodwill Unallocable:

Stage 1 (Bottom-up) — CGU1 without GW:

Stage 1 — CGU2 without GW:

Stage 2 (Top-down) — Combined:

	CGU1	CGU2	GW	Total
Revised CA	18L	16L	2L	36L
Combined RA	—	—	—	35.5L
Combined IL	—	—	—	0.5L

Allocate 0.5L entirely to Goodwill → GW revised CA = 1.5L

CGU1 and CGU2 asset CAs are unchanged.

⚠️ Common exam mistakes

Reducing operating assets before goodwill — goodwill must absorb impairment first within any CGU.
Applying only the bottom-up approach when goodwill is unallocable — both stages are mandatory in Case 2.
Confusing the top-down stage: the additional impairment found there goes to goodwill only, not to operating assets (unless GW is already zero).
Forgetting to use the revised carrying amounts from Stage 1 when constructing the Stage 2 combined CA.

Reference:

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AS 28 — Goodwill Allocation to CGUs: Bottom-up and Top-down Approach

Worked example