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CA Intermediate · Advanced Accounting · AS 28 Impairment of Assets

Sundaram Textiles Ltd. owns a machine with a carrying amount of Rs 12,00,000 at the balance sheet date. Its net selling price is Rs 8,50,000. Its value in use is Rs 9,40,000. What impairment loss should be recognised under AS 28?

The impairment loss is Rs 2,60,000. Recoverable amount is the higher of net selling price and value in use, which is Rs 9,40,000. 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 2,60,000Correct
  2. BRs 3,50,000
  3. CRs 1,50,000
  4. DRs 0

Explanation

Recoverable amount is the higher of net selling price (8,50,000) and value in use (9,40,000), i.e. 9,40,000. Impairment loss = 12,00,000 - 9,40,000 = 2,60,000. Using net selling price alone gives 3,50,000, which wrongly takes the lower figure.

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