How is goodwill impairment allocated between the parent and non-controlling interest (NCI)?
I'm studying CFA Level II and I know that goodwill can be measured using either the full goodwill or partial goodwill method. When goodwill is impaired, how is the impairment loss split between the parent and NCI? Does the method used for initial measurement matter?
Goodwill impairment allocation between the parent and NCI depends on which method was used to initially measure goodwill — the full goodwill method or the partial goodwill method.
Full Goodwill Method (US GAAP default; IFRS option):
Goodwill is calculated based on the fair value of the entire subsidiary (including the NCI portion). Both the parent's goodwill and the NCI's implied goodwill are recognized.
When impaired: The impairment loss is allocated between the parent and NCI in proportion to their ownership interests.
Partial Goodwill Method (IFRS option only):
Goodwill is calculated only on the parent's portion of the excess of consideration over net assets. NCI is measured at its proportionate share of identifiable net assets — no goodwill is attributed to NCI.
When impaired: The ENTIRE impairment loss is allocated to the parent only (since NCI was never assigned any goodwill).
Worked Example — Atlas Group (80% of Summit Corp):
Atlas acquired 80% of Summit. NCI = 20%.
| Method | Total Goodwill | Attributed to Parent | Attributed to NCI |
|---|---|---|---|
| Full goodwill | $50,000,000 | $40,000,000 | $10,000,000 |
| Partial goodwill | $40,000,000 | $40,000,000 | $0 |
Scenario: Goodwill impairment of $12,000,000
Full Goodwill Method:
| Allocation | Amount |
|---|---|
| Parent (80%) | $9,600,000 |
| NCI (20%) | $2,400,000 |
| Total impairment | $12,000,000 |
Income attributable to parent decreases by $9.6M
Income attributable to NCI decreases by $2.4M
Partial Goodwill Method:
| Allocation | Amount |
|---|---|
| Parent (100%) | $12,000,000 |
| NCI | $0 |
| Total impairment | $12,000,000 |
But wait — under partial goodwill, total goodwill is only $40M. The impairment cannot exceed the carrying amount. The $12M is entirely allocated to the parent's $40M goodwill.
IFRS Special Case — Grossing Up for Impairment Testing:
Under IFRS, when the partial goodwill method is used, IAS 36 requires that the carrying amount of the cash-generating unit be grossed up to include notional NCI goodwill for the purposes of impairment testing. After determining impairment, the NCI portion is then stripped out, and only the parent's portion is recognized.
Key Exam Points:
- Full goodwill — impairment shared proportionally between parent and NCI.
- Partial goodwill — 100% of impairment to parent; IFRS requires gross-up for testing.
- US GAAP only allows full goodwill method; IFRS allows either.
- Impairment is recognized in P&L and reduces consolidated goodwill on the balance sheet.
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