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CA Intermediate · Advanced Accounting · AS 28 Impairment of Assets

Godavari Polymers Ltd. tests a moulding line for impairment. Carrying amount is ₹30,00,000 and net selling price is ₹24,00,000. Expected net cash inflows from continuing use are ₹10,00,000, ₹12,00,000 and ₹8,00,000 at the end of years 1, 2 and 3 respectively, and net disposal proceeds of ₹2,00,000 at the end of year 3. These figures already exclude financing and tax. Separately, interest of ₹1,00,000 is paid annually on a loan used to buy the line. Discount factors at the appropriate rate are 0.909, 0.826 and 0.751 for years 1 to 3. What is the impairment loss?

The impairment loss is ₹3,48,800. Value in use is the present value of operating inflows plus final disposal proceeds, ₹26,51,200, excluding financing interest. This exceeds net selling price of ₹24,00,000, so it is the recoverable amount, and the shortfall against the ₹30,00,000 carrying amount is the loss.

  1. A₹3,48,800Correct
  2. B₹4,99,000
  3. C₹5,97,400
  4. D₹6,00,000

Explanation

Value in use = 10,00,000×0.909 + 12,00,000×0.826 + (8,00,000+2,00,000)×0.751 = 9,09,000 + 9,91,200 + 7,51,000 = ₹26,51,200. Financing cash flows such as interest are excluded. Recoverable amount is the higher of 26,51,200 and 24,00,000, so loss = 30,00,000 − 26,51,200 = ₹3,48,800. Omitting disposal proceeds gives ₹4,99,000, and deducting interest gives ₹5,97,400, both wrong.

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