Impairment of fleet, terminals and goodwill

Loss of a major contract, route closures, or vessel/terminal underperformance are common impairment indicators in logistics that trigger a recoverable amount test for the relevant cash-generating unit, and goodwill from 3PL acquisitions must be tested at least annually regardless of indicators. Overly optimistic cash flow forecasts that ignore the triggering event can delay recognition of a real, already-incurred economic loss, overstating assets and profit until a later, larger write-down is forced.

What specific impairment indicators have been identified, loss of a major customer contract, route or terminal closure, declining freight rates or utilization, or adverse regulatory change, and to which cash-generating unit do they relate? Has goodwill been tested for impairment at least annually regardless of whether indicators exist, with a reasonable and supportable allocation to the relevant CGU or group of CGUs? Are the value-in-use cash flow projections based on current, realistic management-approved assumptions for the specific route, contract, or terminal, rather than the original acquisition business case?

1) Monitor for impairment indicators at each reporting date: loss of a major customer contract, route/terminal closures, declining freight rates or utilization, and adverse market/regulatory changes. 2) Test goodwill for impairment at least annually regardless of whether indicators exist, allocating it to the cash-generating unit(s) expected to benefit from the acquisition synergies. 3) Define the appropriate cash-generating unit (the smallest identifiable group of assets generating largely independent cash inflows, e.g. a specific route, terminal, or vessel) and allocate shared/corporate assets consistently. 4) Compare the CGU's carrying amount to its recoverable amount (higher of fair value less costs of disposal and value in use). 5) If impaired, allocate the loss first to goodwill within the CGU, then pro rata to other assets, not below their individual recoverable amounts where determinable. 6) Reverse impairment losses on assets other than goodwill in later periods if indicators of reversal exist (goodwill impairment is never reversed).

Measure value in use using cash flow projections reflecting realistic, current management-approved assumptions (not the original acquisition business case) for the specific route/contract/terminal, discounted at a pre-tax rate reflecting current market assessments of the time value of money and asset-specific risks. Measure fair value less costs of disposal using observable market evidence where available (e.g. comparable vessel/terminal transactions) or a discounted cash flow if not.

Disclose: (1) the events and circumstances leading to impairment; (2) the recoverable amount basis (fair value less costs of disposal or value in use) and whether it was determined using level 1/2/3 inputs; (3) key assumptions (discount rate, growth rate, utilization) and management's approach to determining their values; (4) sensitivity analysis where a reasonably possible change in a key assumption would trigger further impairment; (5) the carrying amount of goodwill allocated to each significant CGU.

• Using overly optimistic cash flow forecasts that ignore the loss of the triggering contract, effectively assuming a full and immediate replacement of lost volume
• failing to test goodwill annually regardless of whether indicators are separately identified
• not allocating shared corporate/fleet assets to the correct cash-generating unit, distorting the test
• reversing a goodwill impairment loss in a later period, which is never permitted under IAS 36.