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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 18,00,000. Its net selling price is Rs 14,50,000 and its value in use is Rs 15,70,000. Under AS 28, what impairment loss should be recognised?

The impairment loss is Rs 2,30,000. Recoverable amount is the higher of net selling price and value in use, which is Rs 15,70,000. Subtracting this from the carrying amount of Rs 18,00,000 gives the loss to be recognised in the statement of profit and loss.

  1. ARs 2,30,000Correct
  2. BRs 3,50,000
  3. CRs 1,20,000
  4. DRs 0

Explanation

Recoverable amount is the higher of net selling price (14,50,000) and value in use (15,70,000), i.e. Rs 15,70,000. Impairment loss = 18,00,000 - 15,70,000 = Rs 2,30,000. Using net selling price would give Rs 3,50,000, which is wrong because the lower figure is not used.

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