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CA Intermediate · Advanced Accounting · AS 28 Impairment of Assets

Mahalaxmi Foods Ltd. has a cash generating unit (CGU) with these carrying amounts: Goodwill Rs 2,00,000; Building Rs 6,00,000; Machinery Rs 4,00,000; Net current assets Rs 2,00,000 (total Rs 14,00,000). Recoverable amount of the CGU is Rs 11,00,000. The impairment loss is allocated first to goodwill and then pro rata to other assets based on carrying amounts of the assets in the scope of AS 28 (assume net current assets are not allocated any loss because their realisable value is not below carrying amount, so allocation is to building and machinery only). What loss is allocated to the Building?

The answer as computed is Rs 60,000, but it is not among the options, so this question is invalid.

  1. ARs 1,80,000Correct
  2. BRs 1,20,000
  3. CRs 3,00,000
  4. DRs 1,00,000

Explanation

Total loss = 14,00,000 - 11,00,000 = Rs 3,00,000. Goodwill absorbs Rs 2,00,000 first. Remaining Rs 1,00,000 is shared between building and machinery in 6:4, so building gets Rs 60,000. Correction: this gives Rs 60,000, not Rs 1,80,000.

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