1. Goodwill Impairment:

A company is testing a CGU for impairment at the end of 2017. The CGU has a carrying amount of $820 million which includes $350 million of goodwill. The cash flow forecast is for 10 years. The net cash flow from the CGU is expected to be $90 million in 2018, and to grow by 6% every year until 2022, and then grow by 3% every year from 2023 to 2027. The fair value of the CGU is $750 million (assume cost to sell in inconsequential), and the fair value of the assets (without the goodwill) is $600 million. The company estimates that its discount rate (to be used in value-in-use calculations) is 7%.

a.What is the goodwill impairment charge under IFRS? (Hint: you should use an Excel sheet to project the cash flows for the 10 years and then discount them to find value-in-use. Also assume that cash flows occur at the end of the year, so for example, the cash flow in 2018 is received only at the end of 2018).

b.Assume the CGU is also a Reporting Unit (RU) under U.S. GAAP. What is the goodwill impairment charge under current U.S. GAAP (effective until 2019)? Under future US GAAP (ASU 2017-04 effective in 2020)?

c.Assume that the company wants to do a sensitivity analysis and check what would be the goodwill impairment charge if assumptions were a bit more conservative, and specifically, if the growth of cash flow until 2022 would be 5% a year instead of 6%, and the growth in the years 2023-2027 would be zero instead of 3%. Solve parts a and b again with these new, more conservative, assumptions.