3.8 Disposal of a Portion of an Entity (or a Reporting Unit)
ASC 350-20
40-8 The following guidance for
goodwill applies to entities within the scope of paragraph
350-20-15-4 that elect the accounting alternative for
amortizing goodwill.
Disposal of a Portion of an Entity (or a Reporting
Unit)
40-9
When a portion of an entity (or a reporting unit) that
constitutes a business or nonprofit activity is to be
disposed of, goodwill associated with that business or
nonprofit activity shall be included in the carrying amount
of the business or nonprofit activity in determining the
gain or loss on disposal. An entity shall use a reasonable
and rational approach to determine the amount of goodwill
associated with the business or nonprofit activity to be
disposed of.
For entities that apply the general goodwill accounting model, ASC
350-20-40-2 through 40-7 include specific guidance on the amount of goodwill to
allocate to a disposal group when a portion of a reporting unit is to be disposed
of. Entities are generally required to use a relative fair value allocation approach
or the current carrying amount of goodwill related to the business to be disposed of
in the limited circumstance in which the business had not been integrated. (See
Section 2.11 for more information.)
However, for private companies and NFPs, the guidance in ASC
350-20-40-9 states that to allocate goodwill to a disposal group, the portion to be
disposed of must meet the definition of a business; however, it does not provide a
specific allocation method. The guidance states only that “[a]n entity shall use a
reasonable and rational approach to determine the amount of goodwill associated with
the business or nonprofit activity to be disposed of.” We believe that, although a
relative fair value allocation approach is one reasonable and supportable method,
other approaches may be as well, depending on the facts and circumstances. For
example, because each individual amortizable unit of the entity’s (or the reporting
unit’s) goodwill must be tracked, specific identification may also be a reasonable
and supportable method in some cases.
While it is not required to do so, if the entity has elected to test goodwill at the
reporting unit level (see Section 3.4.1) and disposes of an
entire reporting unit, we believe that it should apply the guidance in ASC
350-20-40-1, which states that “[w]hen a reporting unit is to be disposed of in its
entirety, goodwill of that reporting unit shall be included in the carrying amount
of the reporting unit in determining the gain or loss on disposal.”
See Section
2.4 of Deloitte’s Roadmap Business Combinations for more
information about determining whether the portion to be disposed of meets the
definition of a business. Also see Deloitte’s Roadmap Impairments and Disposals of Long-Lived Assets and
Discontinued Operations for more information about
classifying disposal groups as held for sale and reporting discontinued operations.
In addition, see Section
5.5.5 of this Roadmap for disclosure requirements related to
assigning goodwill to a disposal group.