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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 ₹48,00,000. Its net selling price is ₹40,00,000 and its value in use is ₹44,00,000. Under AS 28, what impairment loss should be recognised for the machine?

The impairment loss is ₹4,00,000. Recoverable amount under AS 28 is the higher of net selling price and value in use, which is ₹44,00,000. Deducting this from the carrying amount of ₹48,00,000 gives the loss to be recognised in the statement of profit and loss.

  1. A₹4,00,000Correct
  2. B₹8,00,000
  3. C₹10,00,000
  4. DNil

Explanation

Recoverable amount is the higher of net selling price (40,00,000) and value in use (44,00,000), i.e. ₹44,00,000. Impairment loss = 48,00,000 - 44,00,000 = ₹4,00,000. Using net selling price would give ₹8,00,000, which is wrong because the higher figure must be used.

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