Impairment Test Memo Template (IAS 36, ASC 350, ASC 360)

Impairment Test Memo: [CGU or reporting unit] [Test date]

Technical accounting memo documenting an impairment test of goodwill, indefinite-life intangible assets or a cash-generating unit with an impairment indicator: scope and triggers, CGU identification and goodwill allocation, carrying amount, recoverable amount (value in use and fair value less costs of disposal), discount rate, key assumptions, sensitivity and headroom, impairment loss allocation, US GAAP differences and disclosure. Structure aligned with IAS 36 Impairment of Assets and FASB ASC Topics 350 and 360, cited by standard and paragraph number only. Obtain the standard for the normative text. Replace every [bracketed] value and every row marked Example. This is a document format, not accounting, audit, valuation, tax or financial advice.

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Contents

1. Summary and conclusion
2. Scope, triggers and test timing
3. CGU identification and goodwill allocation
4. Carrying amount
5. Value in use
6. Discount rate
7. Fair value less costs of disposal
8. Sensitivity and headroom
9. Impairment loss and allocation
10. US GAAP differences
11. Disclosure
12. Controls, governance and evidence
13. Glossary and references
14. Standard and licence note

1. Summary and conclusion

State the result for every unit tested, the basis of the recoverable amount, the headroom in money and as a percentage of carrying amount, and the change in each key assumption that would remove the headroom. If any reasonably possible change would cause an impairment, say so, because it drives a specific disclosure.

Example: At the annual test date of 2026-10-31 the Marketplace DACH group of CGUs carries goodwill of EUR 21,000 thousand and a total carrying amount of EUR 42,500 thousand. Its value in use is EUR 46,377 thousand, above fair value less costs of disposal of EUR 45,300 thousand, so the recoverable amount is the value in use and headroom is EUR 3,877 thousand (9.1%). No impairment arises. Headroom is eliminated by a rise of about 0.7 percentage points in the post-tax discount rate, or a fall of about 1.0 percentage point in terminal growth, which management considers reasonably possible, so the sensitivity is disclosed. The Vietnam engineering services CGU lost its external client business when the group converted Corvid Commerce Vietnam LLC into a captive cost-plus service centre; its recoverable amount of EUR 9,400 thousand is below the carrying amount of EUR 12,000 thousand, and an FY2026 impairment loss of EUR 2,600 thousand is recognised, of which EUR 2,000 thousand reduces goodwill to zero. No new indicator arose between 2026-10-31 and 2026-12-31.

2. Scope, triggers and test timing

Goodwill, intangible assets with an indefinite useful life and intangible assets not yet available for use need an annual test, whether or not an indicator exists (IAS 36 paragraphs 9 and 10). Other assets are tested when an indicator exists at the reporting date (IAS 36 paragraphs 12 to 14). Record the annual test date for each unit; it may differ between units but must be the same every year for a given unit (IAS 36 paragraph 96).

Test at the same date every year, and repeat the indicator review at the reporting date: an event between the annual test date and the year end (here between 31 October and 31 December) can require a further test. Document the indicator review even when nothing is found. Consider external sources such as market interest rates, market capitalisation compared with net assets and adverse changes in the market, and internal sources such as performance below budget, restructuring plans and physical damage.

3. CGU identification and goodwill allocation

Identify the smallest group of assets that generates largely independent cash inflows (IAS 36 paragraphs 66 to 73). Look at how management monitors operations and makes decisions about continuing or disposing of assets, and whether an active market exists for the output of a group of assets even if the output is used internally. Keep CGU definitions consistent from period to period unless a change is justified and disclosed.

Under IAS 36 paragraphs 70 and 71, a unit whose output is used internally is still a CGU when an active market exists for that output; measure its cash inflows at arm's-length prices rather than the internal transfer price. This matters for the Vietnam example, whose only customer from 2027 is the group.

Allocate goodwill to the CGUs or groups of CGUs expected to benefit from the synergies of the business combination, at the lowest level at which goodwill is monitored for internal management purposes and not larger than an operating segment before aggregation (IAS 36 paragraphs 80 to 87). Complete the initial allocation before the end of the first annual period beginning after the acquisition date (IAS 36 paragraph 84).

4. Carrying amount

Include the assets that can be attributed directly, or allocated on a reasonable and consistent basis, to the unit and that generate the cash flows used in the recoverable amount (IAS 36 paragraphs 75 to 79). Exclude recognised liabilities unless the recoverable amount cannot be determined without them. Shared corporate assets, such as a group platform or headquarters, are allocated where a reasonable basis exists; otherwise apply the stepped approach in IAS 36 paragraph 102.

Right-of-use assets need care. The usual approach includes right-of-use assets in the carrying amount, excludes lease liabilities, and excludes lease payments from the cash flows because they are financing flows. The discount rate then needs to reflect lease debt in the capital structure, and the terminal-period cash flows need to include the cost of replacing leased assets after their current lease terms (see the lease replacement row in section 5.1). Omitting that cost overstates value in use, often by more than the headroom.

Example check: Marketplace DACH: 21,000 + 9,000 + 4,500 + 5,500 + 2,500 = 42,500. Vietnam engineering services: 2,000 + 3,000 + 6,000 + 1,000 = 12,000; the Vietnam CGU's working capital is negligible and the cash flows are prepared before working capital movements.

Reconcile the unit carrying amounts to the consolidated balance sheet before the test is reviewed, because a unit total that exceeds the group line is an error in the model, not a judgement. Example reconciliation at 2026-12-31, after the Vietnam loss in section 9: goodwill and intangible assets of the two units are 30,000 (DACH) plus 2,820 (Vietnam, 3,000 less 180 of the loss), capitalised development of 4,806 is tested with the group platform, and other software licences are 374, giving the group's 38,000 (30,000 + 2,820 + 4,806 + 374). Right-of-use assets of the two units are 5,500 plus 940 (1,000 less 60), and office leases of CC-UK, CC-US and the parent make up the remaining 1,160 of the group's 7,600. Lease liabilities of 8,000 are excluded from the carrying amount, consistent with the cash flows.

5. Value in use

Base cash flow projections on reasonable and supportable assumptions, on the most recent budgets or forecasts approved by management, and for a period of no more than five years unless a longer period can be justified (IAS 36 paragraphs 33 to 38). Exclude cash flows from restructurings the entity is not yet committed to and from improving or enhancing the asset's performance (IAS 36 paragraph 44), as well as financing and income tax flows (IAS 36 paragraph 50). Extrapolate beyond the forecast period with a steady or declining growth rate that does not exceed the long-term average for the products, industries or countries, unless justified.

Test the forecasts against history. Compare the last three years of budgets with actual results and explain any systematic optimism. Where the budget includes a recovery, describe the specific actions that support it.

5.1 Cash flow projections, Marketplace DACH

Example check: each column adds up; for 2027, EBITDA of 5,200 less taxes of 1,100, capital expenditure of 800 and working capital of 300 gives 3,000. The lease replacement allowance reflects the right-of-use assets of 5,500 in the carrying amount, renewed on an average lease cycle of about 10 years (5,500 / 10 = 550 a year). In the explicit years the existing right-of-use assets, which are in the carrying amount, provide the leased capacity and their payments are excluded as financing flows. In perpetuity those leases must be renewed, so the terminal cash flow bears the replacement cost.

5.2 Key assumptions and their basis

5.3 Discounting

The value in use with a five-year explicit period and a growing perpetuity is:

The example uses end-of-year discounting. A mid-year convention would raise the value in use; choose one convention, state it and keep it.

Example check: the terminal value at the end of 2031 uses the normalised terminal cash flow: 3,750 x 1.02 / (0.095 - 0.02) = 3,825 / 0.075 = 51,000. Its present value is 51,000 / 1.095^5 = 32,397. The five explicit years add to 13,980, so value in use is 13,980 + 32,397 = 46,377. The terminal value is 69.9% of value in use, which is usual for a growing business but means the terminal assumptions deserve the closest review. Without the lease replacement allowance the value in use would be 51,128, which shows how much the allowance matters.

6. Discount rate

The rate should reflect current market assessments of the time value of money and the risks specific to the asset for which the cash flows have not been adjusted (IAS 36 paragraphs 55 to 57 and A15 to A21). In practice most entities start from a weighted average cost of capital for a market participant, built with the capital asset pricing model, and avoid double counting risks already reflected in the cash flows. The standard is framed in pre-tax terms; when the model uses post-tax cash flows and a post-tax rate, derive the pre-tax rate iteratively so that it gives the same value in use, and disclose it.

Example check: 0.80 x 11.0% = 8.8% and 0.20 x 3.5% = 0.7%, so WACC is 9.5%. For the iteration, pre-tax cash flow is free cash flow plus the cash taxes in section 5.1: 4,100, 4,650, 5,150, 5,550 and 5,900, with a terminal pre-tax flow of 3,750 + 1,600 = 5,350 growing at 2.0%. The rate that discounts those flows to the value in use of 46,377 is 12.53%, disclosed as 12.5%. Use the same pre-tax flows when you check the disclosed rate, and keep the iteration in the model.

7. Fair value less costs of disposal

Recoverable amount is the higher of value in use and fair value less costs of disposal (IAS 36 paragraph 18). If either exceeds the carrying amount there is no impairment and the other need not be estimated (IAS 36 paragraph 19). Measure fair value under IFRS 13 from the perspective of market participants, and state the fair value hierarchy level and valuation technique (IAS 36 paragraph 134(e)). Costs of disposal are incremental costs directly attributable to the disposal, excluding finance costs and income tax.

Example conclusion: FVLCOD of EUR 45,300 thousand is below value in use of EUR 46,377 thousand, so the recoverable amount is value in use. Both exceed the carrying amount. Because the multiple is applied to an EBITDA that excludes lease payments, the enterprise value is comparable with a carrying amount that excludes lease liabilities.

8. Sensitivity and headroom

Calculate headroom as recoverable amount less carrying amount. For each key assumption, show the break-even value (the value at which headroom is zero) and judge whether a change of that size is reasonably possible. Where it is, IAS 36 paragraph 134(f) requires disclosure of the headroom, the assumption value and the change that would eliminate the headroom. Present a two-way table for the discount rate and the terminal growth rate, which usually dominate the result.

8.1 Two-way table: headroom in EUR million

Example conclusion: the post-tax discount rate has the least room. A rise of 0.7 percentage points is well within the range of movements in the peer-group WACC over the last five years, and a fall of about one percentage point in terminal growth or of about 8% in cash flows would also remove the headroom. Management considers each change reasonably possible and discloses all three under IAS 36 paragraph 134(f). The combination of a 10.5% rate and 1.0% growth would produce an impairment of about EUR 4.7 million, which is shown to the audit committee as a downside scenario. Thin headroom is also a reason to present the goodwill estimate as a source of estimation uncertainty in the judgements and estimates note.

9. Impairment loss and allocation

When the recoverable amount of a unit is below its carrying amount, allocate the loss first to reduce goodwill allocated to the unit, then to the other assets in the scope of IAS 36 pro rata to their carrying amounts (IAS 36 paragraphs 104 and 105). No asset may be reduced below the highest of its fair value less costs of disposal (if measurable), its value in use (if determinable) and zero; reallocate any excess to the remaining assets. Recognise the loss in profit or loss, or as a revaluation decrease for revalued assets. Goodwill impairment is never reversed (IAS 36 paragraph 124); other assets are assessed for reversal indicators at each reporting date (IAS 36 paragraphs 110 to 123).

Example, Vietnam engineering services: from 2027 the unit's only customer is the group, so its value in use is built from arm's-length prices for comparable outsourced engineering and support services, as supported by the transfer pricing benchmark, rather than from the external client margins that justified the 2024 goodwill. The recoverable amount is EUR 9,400 thousand (value in use; fair value less costs of disposal is EUR 8,700 thousand). The loss is EUR 12,000 - 9,400 = EUR 2,600 thousand. Goodwill of EUR 2,000 thousand is written off first. The remaining EUR 600 thousand is allocated pro rata over the other assets with a combined carrying amount of EUR 10,000 thousand.

The FY2026 loss is presented under IAS 1 in the FY2026 statements. Under IFRS 18, which applies from 2027-01-01, impairment losses on operating assets and goodwill are presented in the operating category, including in the restated FY2026 comparatives. Check the group mapping in IFRS 18 Transition Plan (finance/ifrs-18-transition-plan). Consider the tax effect: goodwill impairment is often not deductible, while impairment of other assets may reduce deferred tax liabilities; coordinate with Income Tax Provision (finance/income-tax-provision).

10. US GAAP differences

US GAAP tests goodwill at the reporting unit level under ASC 350-20, with an optional qualitative assessment (ASC 350-20-35-3A) followed by a single quantitative comparison of the reporting unit's fair value with its carrying amount (ASC 350-20-35-8), after ASU 2017-04 removed the former second step. The loss equals the excess of carrying amount over fair value, limited to the goodwill of the reporting unit.

Long-lived assets held and used are grouped at the lowest level with identifiable cash flows (ASC 360-10-35-23) and tested only on a triggering event (ASC 360-10-35-21). The first step compares the carrying amount with undiscounted cash flows (ASC 360-10-35-17); only if that fails is a loss measured as carrying amount less fair value. Test the asset group under ASC 360 before testing goodwill of the reporting unit that contains it (ASC 350-20-35-31). Indefinite-lived intangibles are tested under ASC 350-30-35-18. Reversals of impairment losses are not permitted for assets held and used.

Example note: under US GAAP the Vietnam result differs, because the undiscounted recoverability test passes while the discounted IFRS test fails. With a reporting unit fair value of about EUR [8,700 plus estimated disposal costs] thousand, still well below the carrying amount of EUR 12,000 thousand, the goodwill loss is capped at the EUR 2,000 thousand of goodwill, so the US GAAP loss is EUR 2,000 thousand against EUR 2,600 thousand under IAS 36. Prepare the US GAAP reporting package from a separate calculation and reconcile the difference.

11. Disclosure

Map each unit to the disclosure requirements of IAS 36 paragraphs 126 to 137: losses and reversals by class of asset and segment, the events that led to a material loss, the basis of recoverable amount, and for each unit with significant goodwill the carrying amount of goodwill, key assumptions, the approach to each, the projection period, growth and discount rates, and sensitivity where applicable (IAS 36 paragraph 134). Add the significant judgement and estimation-uncertainty disclosures required by the presentation standard.

12. Controls, governance and evidence

Impairment tests rely on estimates, so the controls that matter are those over inputs and review. Record who prepared the forecasts and who approved them, how the model was checked, where each market input came from, and what the reviewer challenged. Keep the evidence with the memo so the auditor can follow the review. Link the controls to the Risk and Control Matrix (compliance/risk-control-matrix), and if an external valuer was used, record their scope, independence and the procedures performed on their work.

13. Glossary and references

13.1 Glossary

13.2 References

Standard and licence note

Structure aligned with IAS 36 Impairment of Assets and FASB ASC Topics 350 and 360. Standards are cited by name and paragraph number only; no text, definitions or illustrative examples from the IFRS Foundation or FASB are reproduced or paraphrased, and IFRS is a trademark of the IFRS Foundation used nominatively. The WACC, CAPM and discounting formulas are general finance arithmetic written in original form. Obtain the current standards for the normative requirements and check pending amendments and effective dates. Corvid Commerce Group and every figure are fictional and original. This template is original text written for this collection and is not accounting or valuation advice. Template licence: MIT.