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CA Intermediate · Advanced Accounting · AS 28 Impairment of Assets

Narmada Foods Ltd. holds a plant bought for Rs 20,00,000 with a revalued carrying amount of Rs 12,00,000 after earlier revaluation. The revaluation surplus on this plant standing in the revaluation reserve is Rs 3,00,000. Its recoverable amount is Rs 8,00,000. Under AS 28, how is the impairment loss treated?

Rs 3,00,000 is charged against the revaluation reserve and Rs 1,00,000 to profit and loss. The impairment loss of Rs 4,00,000 on a revalued asset is treated as a revaluation decrease, set off against the surplus on that asset only to the extent of its balance.

  1. ARs 4,00,000 charged to profit and loss in full
  2. BRs 3,00,000 charged against revaluation reserve and Rs 1,00,000 to profit and lossCorrect
  3. CRs 4,00,000 charged entirely against revaluation reserve
  4. DRs 1,00,000 charged against revaluation reserve and Rs 3,00,000 to profit and loss

Explanation

Impairment loss = 12,00,000 - 8,00,000 = 4,00,000. On a revalued asset, the loss is treated as a revaluation decrease and is set against the revaluation surplus on that asset up to its balance (3,00,000). The balance of 1,00,000 goes to profit and loss. Charging all to reserve ignores the cap on the surplus.

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