marchant

hi sir,

1) could u plz state a reason/rational of why reversal of impairement of goodwill is not allowed ?

2)

the question

On 1 May 20X2, Marchant acquired 60% of the equity interests of Nathan, a public
limited company. The purchase consideration comprised cash of $80 million and the
fair value of the identifiable net assets acquired was $110 million at that date. The
fair value of the non-controlling interest (NCI) in Nathan was $45 million on 1 May
20X2. Marchant wishes to use the ‘full goodwill’ method for all acquisitions. The
share capital and retained earnings of Nathan were $25 million and $65 million
respectively and other components of equity were $6 million at the date of
acquisition. The excess of the fair value of the identifiable net assets at acquisition is
due to non-depreciable land.
Goodwill has been impairment tested annually and as at 30 April 20X3 had reduced
in value by 20%. However at 30 April 20X4, the impairment of goodwill had reversed
and goodwill was valued at $2 million above its original value. This upward change in
value has already been included in above draft financial statements of Marchant
prior to the preparation of the group accounts.

the answer

Fair value of consideration 80
Fair value of non-controlling interest 45
–––––
125
Fair value of identifiable net assets acquired (110)
–––––
Goodwill at acquisition 15
Impairment (20%) (3)
–––––
Goodwill 12
–––––
Goodwill has been increased to $17 million ($15m + $2m). However,
impairments recorded against goodwill are not allowed to be reversed.
Therefore, $5 million ($17m – $12m) must be charged to profit or loss to
reduce goodwill to the correct amount of $12 million.

** I dont understand the reversal part.

we arraived to the correct figire of 12
why then when reversal we removed the impairment of 3. and go back to cv at 1/5/2 which is 15 and increased it by 2 to become 17

i increased the 12 figure of goodwill so its become 14.

so the adjustment should be only 2 not 5

kindly clarify my misunderstanding

thanks