How do you handle goodwill allocation in a divestiture (sale of a CGU)?

Answer

Mechanics

When you sell a CGU or part of a CGU, the associated goodwill must be disposed of with it — critical for the reported gain / loss on sale.

IAS 36 allocation

If the unit sold was its own CGU, all of the associated goodwill goes with it.
If only part of a CGU is sold, goodwill is allocated based on 'relative fair values' (the portion sold vs. the portion retained).

Gain-on-sale formula

```
Gain / loss on disposal = sale proceeds − net-asset carrying value (incl. allocated goodwill)
```

Consequences

If goodwill is not allocated, the reported gain is artificially overstated.
The remaining goodwill in the parent CGU must be retested for recoverability.

Deep diveShow more details

Example — Industrial Manufacturing Co divestiture

Inputs:

Industrial-tools CGU goodwill: $200m
Sale: a sub-business (40% of the CGU's fair value)
Sale proceeds: $150m
Net assets excluding goodwill: $50m

Calculation:
```
Goodwill allocated to the portion sold: 40% × $200m = $80m
Net assets sold (incl. goodwill): $50 + $80 = $130m
Gain on sale: $150 − $130 = $20m
Remaining goodwill on the residual CGU: $200 − $80 = $120m (new recoverability test)
```

Pitch tip

'For a sell-side divestiture pitch, prepare a clear goodwill-allocation logic — the buyer will test the reported gain against a strict goodwill-allocation approach, otherwise valuation differences of $10–30m are possible'.

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