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CA Intermediate · Advanced Accounting · AS 28 Impairment of Assets

Kaveri Plastics Ltd. has a machine with original cost Rs 20,00,000, useful life 10 years, no residual value, depreciated straight-line. At the end of year 4 (after 4 years' depreciation) an impairment test shows a recoverable amount of Rs 9,00,000, and the remaining life is unchanged at 6 years. The asset is carried at cost (no revaluation). What is the depreciation charge for year 5?

Depreciation for year 5 is Rs 1,50,000. After four years the carrying amount is Rs 12,00,000, which is written down to the recoverable amount of Rs 9,00,000. The revised carrying amount is then depreciated systematically over the remaining useful life of six years.

  1. ARs 2,00,000
  2. BRs 1,50,000Correct
  3. CRs 1,83,333
  4. DRs 3,00,000

Explanation

Carrying amount after 4 years = 20,00,000 - 8,00,000 = Rs 12,00,000. Impairment loss = 12,00,000 - 9,00,000 = Rs 3,00,000, so revised carrying amount is Rs 9,00,000. Depreciation is adjusted over remaining life: 9,00,000 / 6 = Rs 1,50,000. Rs 2,00,000 wrongly continues the old charge.

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