Goodwill Impairment Testing Disclosures under Ind AS: Transition from IGAAP to Ind-AS has resulted in change in treatment of goodwill. IGAAP prescribe amortization if it arises on amalgamation and impairment testing if it arises on consolidation, whereas Ind-AS prescribe only impairment testing. The purpose of the current study is to provide evidence of the extent of compliance with respect to the disclosure requirements of goodwill impairment testing as per Ind-AS 36.

Goodwill Impairment Testing

The remaining paper has following sections

• a. Estimates required for impairment testing
• b. Disclosure requirement as per Ind AS 36
• c. Research methodology
• d. Result and conclusion

a. Estimates required for impairment testing

As per Ind-AS 36 an asset is impaired when its carrying amount exceeds its recoverable amount. Carrying amount is the amount at which an asset is recognised after deducting any accumulated depreciation (amortisation) and accumulated impairment losses thereon. Recoverable amount of an asset or a cash generating unit is the higher of its fair value less costs to sell and its value in use. For impairment testing of goodwill, firm need to calculate recoverable amount, for which it has to calculate fair value and its value in use. Current paper focus only on value in use and related estimates.

As defined by Ind-AS 36, value in use is the present value of the future cash flows expected to be derived from an asset or cash-generating unit. For calculating value in use, firm has to make following estimation-

• i. Remaining useful life
• ii. Cash flow projections
• iii. Discount rate

b. Disclosure requirement as per Ind-AS 36

As mentioned in above section firms need to estimate useful economic life, cash flow and discount rate to measure value in use, it is expected that a firm provides disclosure in its annual report about these estimates. In the absence of such disclosures readers will be clueless about the impairment testing method adopted. In the event of no impairment charge on goodwill, such disclosures become critical, as it will help readers to understand the economic rationale behind it

For transparency Ind-AS 36, particularly para 134 to 137, has prescribed disclosure requirements with respect to estimates used to measure recoverable amounts of goodwill. Current study focus only on value in use estimates hence only requirements laid down in para 134 (d) (i)-(v) have been considered, which are described below-

• i. Assumptions based on which cash flow projection are made
• ii. Description of management's approach to determining the values assigned to each key assumption
• iii. Period for which cash flow projections are made
• iv. Growth rate used in projecting cash flows
• v. Discount rate applied to cash flow projection

c. Research methodology

Sampling methodology - firms were included in the sample upon fulfilment of following sampling requirements -

• i. It should be listed at BSE/NSE or both
• ii. It should have reported goodwill as on March 31, 2017 under Ind-AS
• iii. It should not have charged impairment on goodwill for the year 2016-17
• iv. Its value of gross goodwill should be 100 crores or more
• v. Its ratio of gross goodwill to total assets should be 5% or more

Following six firms satisfied all the above mentioned conditions:

• i. Aditya Birla Fashion & Retail Ltd.
• ii. Jagran Prakashan Ltd.
• iii. Jyothy Laboratories Ltd.
• iv. L & T Technology Services Ltd.
• v. P V R Ltd.
• vi. Pfizer Ltd.

Data analysis - a five item disclosure index was prepared to study the extent of compliance with respect to the disclosure requirements laid down in para 134 (d) (i)-(v) of Ind-AS 36. Using the index disclosure analysis was conducted for the sample firms. Disclosure score was calculated for sample firms with a score of one assigned to each item in the index.

d. Result and conclusion

Table-1 provides disclosure score of the sample firms based on disclosure analysis conducted using the index.

Table 1 : Disclosure score

Firm	Disclosure Score
Aditya Birla Fashion & Retail Ltd.	5
Jagran Prakashan Ltd.	0
Jyothy Laboratories Ltd	5
L & T Technology Services Ltd.	0
P V R Ltd.	0
Pfizer Ltd	5

Three firms which scored five had provided disclosures with respect to value in use measurement estimates like - growth rate, discount rate, basis for cash flow projection and the basis for time period for cash flow projection. One of the sample firm (Jagran Prakashan Ltd.) has not measured value in use and based on its market capitalization it conducted impairment test.

One of the sample firm (PVR Ltd.) mentioned following with respect to goodwill impairment test -

'we assessed qualitative factors and reached a determination that it is not more likely than not that the fair value of our reporting unit is less than its carrying value and therefore the two step method, as described in standard, is not necessary.'

Based on the study it appears that goodwill impairment testing disclosures needs to be improved as out of six firms only three firms made requisite disclosures.

Author - Dr. Abhishek Ranga