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CA Final · Financial Reporting · Ind AS 36 Impairment of Assets

Kaveri Engineering Ltd bought a machine on 1 April Year 1 for Rs 1,000 lakh, with a 10-year life, nil residual value and straight-line depreciation. At the end of Year 4 the carrying amount was Rs 600 lakh and the recoverable amount was assessed at Rs 360 lakh, so an impairment loss of Rs 240 lakh was recognised. The remaining life stayed at 6 years. At the end of Year 6 the recoverable amount is Rs 700 lakh, and the indicators of impairment have reversed. What impairment reversal should be recognised at the end of Year 6?

The reversal is Rs 160 lakh. The carrying amount after impairment and two years of depreciation is Rs 240 lakh, while the ceiling is the depreciated historical carrying amount of Rs 400 lakh. The recoverable amount of Rs 700 lakh does not allow a higher reversal than this ceiling.

  1. ARs 460 lakh
  2. BRs 160 lakhCorrect
  3. CRs 400 lakh
  4. DRs 240 lakh

Explanation

After the impairment, depreciation is 360/6 = Rs 60 lakh a year. The carrying amount at the end of Year 6 is 360 - 120 = Rs 240 lakh. The reversal is capped at the carrying amount had no impairment been recognised, which is 1,000 - (1,000 x 6/10) = Rs 400 lakh. The reversal is therefore 400 - 240 = Rs 160 lakh. Rs 460 lakh wrongly uses the recoverable amount (700 - 240) and ignores the cap.

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