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CA Intermediate · Advanced Accounting · AS 28 Impairment of Assets

Kaveri Pharma Ltd. has an asset carried at cost Rs 100 lakh less accumulated depreciation Rs 20 lakh, with remaining life of 8 years and nil residual value. At year end its recoverable amount is Rs 60 lakh, so an impairment loss is recognised. What is the depreciation charge for the next year, assuming straight line?

Future depreciation is Rs 7.5 lakh. After an impairment loss is recognised, AS 28 requires depreciation to be adjusted so the revised carrying amount, here the recoverable amount of Rs 60 lakh, is allocated over the remaining useful life of 8 years.

  1. ARs 7.5 lakhCorrect
  2. BRs 10 lakh
  3. CRs 12.5 lakh
  4. DRs 6 lakh

Explanation

After impairment the carrying amount becomes the recoverable amount of Rs 60 lakh. Depreciation is revised over the remaining life: 60/8 = Rs 7.5 lakh. Rs 10 lakh would be 80/8, ignoring the impairment loss.

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