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CA Intermediate · Advanced Accounting · AS 24 Discontinuing Operations

Meghdoot Ltd approved and announced a formal plan on 15 January to discontinue its Cement Unit. The year ended 31 March. At 31 March the unit's net carrying amount was ₹90 lakh. The expected net selling price of its assets is ₹70 lakh. A binding sale agreement was signed on 20 April, before the financial statements were approved. The assets were previously recorded at cost less depreciation, and the company had recorded no impairment. How should the position be reflected for the year ended 31 March under AS 24 and AS 28?

An impairment loss of ₹20 lakh must be recognised in the year ended 31 March and disclosed as part of the discontinuing operation. The plan was announced on 15 January, and the carrying amount of ₹90 lakh exceeds the recoverable ₹70 lakh under AS 28.

  1. ARecognise an impairment loss of ₹20 lakh and disclose it as part of the discontinuing operation's lossCorrect
  2. BNo loss until the sale is completed, only disclose the plan
  3. CRecognise ₹20 lakh loss in the next year when the agreement is signed
  4. DRecognise ₹90 lakh loss as the whole unit is being closed

Explanation

The initial disclosure event (announced formal plan) occurred on 15 January, within the year, so AS 24 disclosures apply for the year. Under AS 28 the carrying amount of 90 lakh exceeds recoverable amount (net selling price 70 lakh), so an impairment of 20 lakh is recognised in the year and disclosed as relating to the discontinuing operation. Deferring it to next year is wrong because the event was in this year.

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