BP is an integrated global oil company operating in 100 countries. It is organized as two business segments: Exploration and Production, and Refining and Marketing. BP's financial statements are prepared using IFRS. Goodwill is first allocated to business segments (reporting units), and then to cash-generating units (CGUs) benefitting from the acquisition, within each segment. At the end of 2010, BP reported total goodwill of $8,598 million. Following are allocations of goodwill to CGUs (in millions):
Exploration and Production
UK$ 341
US3,479
Rest of world630
Total.4,450
Refining and Marketing
Rhine FVC629
Lubricants3,285
Other160
Total4,074
Other 74
Total goodwill$8,598
BP uses "value in use" to measure the recoverable value of each CGU. A CGU's value at the end of 2007 is calculated as the present value of its expected future cash Mows, discounted at 12 percent for the Exploration and Production segment and 14 percent for the Refining and Marketing segment. Exploration and Production segment cash flows are those expected to be generated from production of oil or natural gas for each producing field. Refining and Marketing segment cash flows come from the ten-year business segment plan. Assume the following end-of-2010 information on business segments and their CGUs:

Required
a. What factors did BP consider when choosing the discount rates used to calculate value in use?
b. Calculate BP's 2010 goodwill impairment loss, following IFRS.
c. Assume the Rest of World CGU has a value in use of $2,140. How does your answer to b change?
d. If BP followed U.S. GAAP, would the 2010 impairment loss differ from the loss computed under IFRS? Explain.

Transcribed Image Text:

Value in use Carrying value Exploration and Production $9,000 35,000 2,500 $1.114 6,144 2.840 Rest of world Rhine FVC Other Refining and Marketing 13,000 6,000 4,000 1,557 1,938 4,880