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CA Intermediate · Advanced Accounting · AS 28 Impairment of Assets

Kaveri Ltd. owns a machine bought for Rs 10,00,000 with a 10-year life, nil residual value, straight-line depreciation. At the end of year 4 its recoverable amount is Rs 4,20,000, so an impairment loss was recognised. Remaining life is 6 years. What is the depreciation charge for year 5 (carrying amount before impairment: Rs 6,00,000)?

Depreciation for year 5 is Rs 70,000. After the impairment loss of Rs 1,80,000 the carrying amount falls to Rs 4,20,000, and AS 28 requires future depreciation to be based on this revised amount over the remaining useful life of 6 years.

  1. ARs 70,000Correct
  2. BRs 1,00,000
  3. CRs 60,000
  4. DRs 1,80,000

Explanation

Carrying amount before impairment = 10,00,000 - 4,00,000 = 6,00,000. After the loss of 1,80,000 it is 4,20,000. Depreciation is revised over the remaining 6 years: 4,20,000/6 = Rs 70,000. Rs 1,00,000 ignores the impairment.

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