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CA Intermediate · Advanced Accounting · AS 28 Impairment of Assets

Sundaram Textiles Ltd. holds a weaving machine with a carrying amount of Rs 50 lakh at the balance sheet date. A dealer would pay Rs 48 lakh for it in an arm's length sale, and disposal costs would be Rs 3 lakh. The machine's value in use is Rs 44 lakh. What impairment loss should be recognised under AS 28?

The impairment loss is Rs 5 lakh. Recoverable amount is the higher of net selling price (48 less 3 disposal costs, Rs 45 lakh) and value in use (Rs 44 lakh). Carrying amount of Rs 50 lakh exceeds Rs 45 lakh by Rs 5 lakh, which is recognised as the loss.

  1. ARs 2 lakh
  2. BRs 5 lakhCorrect
  3. CRs 6 lakh
  4. DNil

Explanation

Net selling price = 48 - 3 = Rs 45 lakh. Recoverable amount is the higher of Rs 45 lakh and the value in use of Rs 44 lakh, so it is Rs 45 lakh. The loss is 50 - 45 = Rs 5 lakh. Rs 2 lakh results from ignoring disposal costs, and Rs 6 lakh from using value in use alone.

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