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CA Intermediate · Advanced Accounting · AS 28 Impairment of Assets

Kaveri Textiles Ltd. owns a weaving machine with a carrying amount of Rs 12,00,000 at the balance sheet date. Its net selling price is Rs 9,50,000 and its value in use is Rs 10,40,000. What impairment loss should be recognised under AS 28?

The impairment loss is Rs 1,60,000. Recoverable amount is the higher of net selling price and value in use, which is Rs 10,40,000. Subtracting this from the carrying amount of Rs 12,00,000 gives the loss to be recognised in the statement of profit and loss.

  1. ARs 1,60,000Correct
  2. BRs 2,50,000
  3. CRs 0
  4. DRs 4,10,000

Explanation

Recoverable amount is the higher of net selling price (9,50,000) and value in use (10,40,000), i.e. Rs 10,40,000. Impairment loss = 12,00,000 - 10,40,000 = Rs 1,60,000. Rs 2,50,000 wrongly uses net selling price, the lower figure.

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