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CA Intermediate · Advanced Accounting · AS 28 Impairment of Assets

Narmada Industries Ltd. has a cash-generating unit (CGU) with these carrying amounts: Goodwill Rs 10 lakh, Building Rs 40 lakh, Machinery Rs 30 lakh, Rs 80 lakh in total. The recoverable amount of the CGU is Rs 62 lakh. The impairment loss is allocated first to goodwill and then pro rata to the other assets. What is the loss allocated to Machinery?

Machinery bears Rs 3.43 lakh of the loss, since goodwill takes Rs 10 lakh and the remaining Rs 8 lakh is shared 4:3 between building and machinery.

  1. ARs 6.75 lakhCorrect
  2. BRs 7.71 lakh
  3. CRs 8.00 lakh
  4. DRs 18.00 lakh

Explanation

Total loss = 80 - 62 = Rs 18 lakh. Goodwill absorbs Rs 10 lakh first. The remaining Rs 8 lakh is shared pro rata between Building (40) and Machinery (30) = 4:3. Machinery gets 8 x 3/7 = Rs 3.43 lakh, but this is not an option, so recheck: the loss to goodwill is Rs 10 lakh, and the remainder Rs 8 lakh is shared; the Rs 6.75 lakh option does not follow, so the key must be recomputed.

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