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CA Intermediate · Advanced Accounting · AS 28 Impairment of Assets

Sundaram Textiles Ltd. owns a weaving machine with a carrying amount of Rs 40 lakh. Its net selling price (fair value less costs of disposal) is Rs 34 lakh and its value in use is Rs 37 lakh. What is the impairment loss to be recognised under AS 28?

The impairment loss is Rs 3 lakh. Recoverable amount is the higher of net selling price (Rs 34 lakh) and value in use (Rs 37 lakh), so it is Rs 37 lakh. The carrying amount of Rs 40 lakh exceeds this by Rs 3 lakh, which is charged to profit and loss.

  1. ARs 3 lakhCorrect
  2. BRs 6 lakh
  3. CRs 9 lakh
  4. DNil

Explanation

Recoverable amount is the higher of net selling price (34) and value in use (37), i.e. Rs 37 lakh. Impairment loss = 40 - 37 = Rs 3 lakh. Rs 6 lakh results from using net selling price, the lower figure, which is wrong because the higher amount is recoverable amount.

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