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CA Intermediate · Advanced Accounting · AS 28 Impairment of Assets

Sagar Textiles Ltd. owns a weaving machine with a carrying amount of Rs 12,00,000. Its net selling price is Rs 9,50,000 and its value in use is Rs 10,20,000. As per AS 28, what is the impairment loss to be recognised?

The impairment loss is Rs 1,80,000. Under AS 28 the recoverable amount is the higher of net selling price and value in use, here Rs 10,20,000. Deducting 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 1,80,000Correct
  2. BRs 2,50,000
  3. CRs 70,000
  4. DRs 12,00,000

Explanation

Recoverable amount is the higher of net selling price (9,50,000) and value in use (10,20,000), i.e. Rs 10,20,000. Impairment loss = 12,00,000 - 10,20,000 = Rs 1,80,000. Rs 2,50,000 wrongly uses net selling price, the lower figure.

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