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CA Intermediate · Advanced Accounting · AS 28 Impairment of Assets

Himalaya Estates Ltd. carries a plot of land at a revalued amount of ₹50 lakh. The revaluation reserve relating to this land stands at ₹8 lakh. At the year end the recoverable amount of the land is assessed at ₹39 lakh. How much should be charged to the statement of profit and loss as impairment loss under AS 28?

₹3 lakh is charged to profit and loss. The total impairment of ₹11 lakh on the revalued land is treated as a revaluation decrease, so ₹8 lakh is first set against the existing revaluation reserve. Only the excess of ₹3 lakh is recognised as an expense.

  1. A₹11 lakh
  2. B₹3 lakhCorrect
  3. C₹8 lakh
  4. DNil

Explanation

Impairment loss = 50 − 39 = ₹11 lakh. For a revalued asset, the loss is treated as a revaluation decrease and charged first against the revaluation surplus for that asset, here ₹8 lakh. The balance of ₹3 lakh is charged to the statement of profit and loss. Charging the full ₹11 lakh ignores the available reserve.

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