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CA Intermediate · Advanced Accounting · AS 28 Impairment of Assets

Kaveri Industries bought a machine on 1 April 2020 for Rs 100 lakh. It has a 10-year life, nil residual value and is depreciated on the straight-line method. On 31 March 2024 the recoverable amount was Rs 42 lakh and an impairment loss was recognised. Depreciation was then charged on the revised carrying amount over the remaining life. On 31 March 2026 the recoverable amount is Rs 50 lakh. What is the maximum impairment reversal that can be recognised on 31 March 2026?

The maximum reversal is Rs 12 lakh. The carrying amount after impairment and later depreciation is Rs 28 lakh. Had no impairment occurred, the carrying amount would be Rs 40 lakh. A reversal cannot take the asset above that figure, so it is limited to Rs 12 lakh even though the recoverable amount is Rs 50 lakh.

  1. ARs 8 lakh
  2. BRs 12 lakhCorrect
  3. CRs 18 lakh
  4. DRs 22 lakh

Explanation

At 31 March 2024 the carrying amount was 100 - 40 = Rs 60 lakh, so the loss was 60 - 42 = Rs 18 lakh. Depreciation on Rs 42 lakh over 6 years is Rs 7 lakh a year, so the carrying amount at 31 March 2026 is 42 - 14 = Rs 28 lakh. Without the impairment the carrying amount would be 100 - 60 = Rs 40 lakh. The reversal is capped at 40 - 28 = Rs 12 lakh, not the 50 - 28 = Rs 22 lakh the recoverable amount would suggest.

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