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CA Intermediate · Advanced Accounting · AS 28 Impairment of Assets

Godavari Pharma Ltd. has a cash generating unit (CGU) with these carrying amounts: Land Rs 10,00,000, Building Rs 20,00,000, Machinery Rs 30,00,000 (total Rs 60,00,000). The recoverable amount of the CGU is Rs 48,00,000. The net selling price of the land is Rs 10,00,000. No goodwill is allocated. Under AS 28, what is the impairment loss allocated to the machinery?

Machinery bears Rs 7,20,000. The total loss is Rs 12,00,000, but land cannot be written below its net selling price of Rs 10,00,000, so it takes nothing. The loss is shared between building and machinery in the ratio 20:30, giving machinery three-fifths.

  1. ARs 6,00,000Correct
  2. BRs 4,00,000
  3. CRs 5,00,000
  4. DRs 7,20,000

Explanation

Total loss = 60,00,000 - 48,00,000 = 12,00,000. Allocation is pro rata on carrying amounts, but no asset is reduced below its net selling price, so land gets nil. Remaining 12,00,000 is shared between building (20) and machinery (30) in the ratio 2:3. Machinery = 12,00,000 x 3/5 = 7,20,000. Check: 7,20,000 is correct, so option 4 is the key.

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