On January 20X1, Big Music acquired all the assets of Outhere which operates in three different continents.
Question:
On January 20X1, Big Music acquired all the assets of Outhere which operates in three different continents. The purchase price of €20 million could be allocated as follows:
Purchase Price Carrying amount of assets* Goodwill
Europe 10.000.000 7.000.000 3.000.000
Asia 4.000.000 3.000.000 1.000.000
Africa 6.000.000 4.000.000 2.000.000
20.000.000 14.000.000 6.000.000
*assets other than goodwill
During 20X4 there was a severe drought throughout Africa and the production of the Africa cash-generating unit decreased by 70%. Management determined the recoverable amount of the Africa operations to be €1.500.000 on 31 December 20X4. Accumulated impairment losses in respect of goodwill on Africa operations amount up to €800.000 on 31 December 20X3.
By 20X7 the region has had adequate rainfall to relieve the drought conditions, and it is estimated that production would again increase with approximately 50%.
All assets are depreciated over a period of 10 years on a straight-line basis.
Required:
- Calculate the impairment loss for the Africa continent for the year ended 31 December 20X4 and indicate how it will be allocated.
- Calculate the reversal of the impairment loss for the Africa continent for the year ended 31 December 20X7, if the recoverable amount is €1.600.000.
- Calculate the reversal of the impairment loss for the Africa continent for the year ended 31 December 20X7, if the recoverable amount is €1.000.000.