An NCLT scheme creates goodwill or intangible assets on the transferee company’s balance sheet. Ind AS 36 requires the company to test the goodwill and the intangible assets for impairment at least annually, and the impairment testing is a critical post-scheme accounting exercise.
The Goodwill
The goodwill recognised in a business combination is allocated to the cash-generating units (“CGUs”) that are expected to benefit from the combination. The CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.
The Impairment Test
The company must compare the carrying amount of the CGU, including the goodwill, with its recoverable amount. The recoverable amount is the higher of the fair value less costs of disposal and the value in use. The value in use is the present value of the future cash flows expected to be derived from the CGU.
The NCLT Scheme
Where the scheme provides for the amortisation of goodwill, the company must follow the scheme’s terms. The NCLT has approved schemes that discontinued the amortisation of goodwill and required the company to test the goodwill for impairment annually. The company must disclose the impairment testing in its financial statements.
A technically sound post-scheme accounting tests the goodwill and the intangibles for impairment annually, allocates the goodwill to the CGUs, and discloses the assumptions.
Call to Action
Anuj Desai & Associates advises companies on the impairment testing under Ind AS 36 after an NCLT scheme—from the CGU allocation and the recoverable amount to the disclosure and the audit. If your scheme creates goodwill, we can help you structure the impairment testing.
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