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CA Intermediate · Advanced Accounting · AS 28 Impairment of Assets

Kaveri Pharma Ltd. has a plant bought for Rs 50 lakh with a 10-year life and no residual value, depreciated straight-line. At the end of year 4 the recoverable amount is Rs 24 lakh, and the impairment loss is recognised. The remaining life is unchanged at 6 years. What is the depreciation charge for year 5?

Depreciation for year 5 is Rs 4 lakh. After four years the carrying amount is Rs 30 lakh, impaired to the recoverable amount of Rs 24 lakh. AS 28 requires the revised carrying amount to be depreciated over the remaining 6 years, giving Rs 4 lakh annually.

  1. ARs 5 lakh
  2. BRs 4 lakhCorrect
  3. CRs 3 lakh
  4. DRs 6 lakh

Explanation

Carrying amount at end of year 4 = 50 - (5 x 4) = Rs 30 lakh. Recoverable amount Rs 24 lakh gives a loss of Rs 6 lakh. Depreciation is revised over the remaining life: 24 / 6 = Rs 4 lakh. Rs 5 lakh ignores the impairment adjustment.

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