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CA Intermediate · Advanced Accounting · AS 28 Impairment of Assets

Gopal Steels Ltd. bought a machine on 1 April 2022 for Rs 100 lakh, with a useful life of 10 years and nil residual value (straight line). On 31 March 2025 it was found to be impaired and its recoverable amount was Rs 56 lakh. The remaining life is 7 years and residual value is nil. What is the depreciation charge for the year ending 31 March 2026?

Depreciation for 2025-26 is Rs 8 lakh. After three years the carrying amount was Rs 70 lakh, and impairment to the recoverable amount of Rs 56 lakh reduces it. Depreciation is then charged on the revised amount over the remaining 7-year life: 56 divided by 7 equals Rs 8 lakh.

  1. ARs 10 lakh
  2. BRs 8 lakhCorrect
  3. CRs 7 lakh
  4. DRs 5.6 lakh

Explanation

Carrying amount at 31 March 2025 = 100 - 3 x 10 = Rs 70 lakh. Impairment loss = 70 - 56 = Rs 14 lakh, so revised carrying amount is Rs 56 lakh. Depreciation is revised over the remaining 7 years: 56/7 = Rs 8 lakh. Rs 10 lakh ignores the impairment adjustment.

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