Selling a Business… But What about the Goodwill?

When a company plans to sell a division but doesn't yet meet Ind AS 105 "held for sale" criteria, a goodwill impairment dilemma arises. Companies face three options: immediate separation for testing (View 1), waiting until disposal (View 2), or reallocating goodwill only if internal reporting structures have changed (View 3). The authors argue View 3 is most appropriate under Ind AS 36. It ensures goodwill follows how management actually monitors the business rather than future intentions. This prevents premature, irreversible impairments while avoiding the masking of losses within a larger group's performance.

Companies buy businesses and may merge them with other units, and sometimes decide, ‘This bit no longer fits. Let’s sell it.’ When that happens, an important question pops up: If we’re planning to sell part of the business, what happens to the goodwill attached to it? That question gets especially tricky when the sale is planned but not yet near-enough to be classified as ‘held for sale’ under Ind AS 105 Non-current Assets Held for Sale and Discontinued Operations. Let’s look at a simple case study.

ABC: FUTURE SALE AND GOODWILL ACCOUNTING

ABC Tech is a growing technology company. One of its acquired divisions, DataServe, provides cloud data services and has historically been mana