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CA Intermediate · Advanced Accounting · AS 24 Discontinuing Operations

Gupta Industries Ltd. had an initial disclosure event on 10 January 2026 for its chemicals division, with an expected sale in the next year. As at 31 March 2026 the financial statements showed: the division's carrying amount of net assets ₹50,00,000 and a binding sale agreement at ₹42,00,000 (net selling price) signed on 10 January 2026. Its recoverable amount is thus ₹42,00,000. The assets are all tangible and AS 28 applies. Which treatment is correct for the year ended 31 March 2026?

The company should recognise an impairment loss of ₹8,00,000 under AS 28, being carrying amount ₹50,00,000 less recoverable amount ₹42,00,000. AS 24 directs impairment of discontinuing operation assets to be handled under AS 28, so it does not wait for completion or create an AS 29 provision.

  1. ARecognise an impairment loss of ₹8,00,000 under AS 28 and disclose it as part of the discontinuing operation's results; no separate AS 24 loss is netted into ordinary activitiesCorrect
  2. BMake no entry, as loss on sale is recognised only when the sale is completed
  3. CRecognise a provision of ₹8,00,000 under AS 29 for the loss on sale of assets
  4. DRecognise the ₹8,00,000 loss only when the assets are actually transferred, and disclose it as a contingent liability

Explanation

AS 24 states that AS 28 is applied to determine whether assets of a discontinuing operation are impaired; it does not allow a separate provision for losses on sale of assets. Recoverable amount is ₹42,00,000 against a carrying amount of ₹50,00,000, so an impairment loss of ₹8,00,000 is recognised and disclosed for the discontinuing operation. Waiting for completion or using AS 29 provisions is incorrect.

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