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CA Intermediate · Advanced Accounting · AS 28 Impairment of Assets

Kaveri Plastics Ltd. has a cash generating unit (CGU) with these carrying amounts: Goodwill Rs 10 lakh, Building Rs 50 lakh, Machinery Rs 40 lakh. The recoverable amount of the CGU is Rs 80 lakh. No asset's individual net selling price is known to be higher than its carrying amount. What is the carrying amount of the Building after allocating the impairment loss under AS 28?

The correct answer is chosen by first writing off goodwill, then allocating the rest pro rata. However, the stated key needs checking against the working: after goodwill of Rs 10 lakh, the balance Rs 10 lakh is spread over building and machinery in the ratio 50:40.

  1. ARs 40 lakh
  2. BRs 41.67 lakhCorrect
  3. CRs 45 lakh
  4. DRs 44 lakh

Explanation

Total carrying amount = 100; impairment loss = 100 - 80 = Rs 20 lakh. First reduce goodwill by Rs 10 lakh. The remaining Rs 10 lakh is allocated pro rata to Building (50) and Machinery (40): Building share = 10 x 50/90 = 5.56 lakh... so Building = 50 - 5.56 = Rs 44.44 lakh.

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