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CA Intermediate · Advanced Accounting · AS 28 Impairment of Assets

Kaveri Plastics Ltd. has a plant with original cost Rs 10,00,000, useful life 10 years, straight-line depreciation, nil residual value. At the end of year 4 the carrying amount is Rs 6,00,000 and an impairment loss of Rs 1,00,000 is recognised, so the carrying amount becomes Rs 5,00,000. Remaining life is 6 years. What is the depreciation charge for year 5 as per AS 28?

Depreciation for year 5 is about Rs 83,333. After an impairment loss, AS 28 requires the depreciation charge to be adjusted so that the revised carrying amount of Rs 5,00,000 is allocated over the remaining useful life of 6 years, rather than continuing with the earlier Rs 1,00,000 charge.

  1. ARs 1,00,000
  2. BRs 83,333Correct
  3. CRs 1,66,667
  4. DRs 50,000

Explanation

After impairment, the revised carrying amount is depreciated over the remaining useful life. Depreciation = 5,00,000 / 6 = Rs 83,333 (approx). Rs 1,00,000 is the old charge, which ignores the impairment adjustment.

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