You are the financial controller of VERTIGO Limited (VERTIGO), an Irish company that prepares its financial statements to 31 December each year. The following issue needs to be resolved before the financial statements for the year ended 31 December 2006 can be finalized.

On 1 January 2006, VERTIGO purchased all the shares of SAN JUAN Limited (SAN JUAN) for €12,000,000. The fait value of the identifiable net assets of SAN JUAN at that date was €10,800,000. During the year ended 31 December 2006, SAN JUAN traded at a loss and the fair value of its net assets at 31 December 2006 was as follows:

An impairment review at 31 December 2006 indicated that the value in use of SAN Z JUAN at that date was €9,000,000 and that its net realizable value was €8,500,000.
Requirement

(a) Calculate the impairment loss that would arise in the consolidated financial statements of the VERTIGO Group for the year ended 31 December 2006 as a result of the impairment review of SAN JUAN.

(b) Assuming the capitalized development expenditure has no ascertainable market value, show how the impairment loss calculated in

(a) would affect the carrying values of the various net assets in the consolidated statement of financial position of the VERTIGO Group as at 31 December 2006.

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Non-current assets - property, plant and equipment Non-current assets - capitalised development costs Net current assets '000 7,800 1,200 1,500 10,500