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CA Intermediate · Advanced Accounting · AS 24 Discontinuing Operations

Tarang Ltd entered a binding agreement on 15 January to sell its Packaging division. On 31 March (year end), the division's net assets had a carrying amount of Rs 120 lakh. The expected net selling price is Rs 95 lakh, and the division's value in use is Rs 100 lakh. Applying AS 24 read with AS 28, what is the impairment loss to be recognised on the division's assets at the year end, assuming the division's net assets are tested as a whole?

The impairment loss is Rs 20 lakh. Under AS 28, recoverable amount is the higher of net selling price (Rs 95 lakh) and value in use (Rs 100 lakh), so it is Rs 100 lakh. Subtracting this from the carrying amount of Rs 120 lakh gives the loss.

  1. ARs 25 lakh
  2. BRs 20 lakhCorrect
  3. CRs 5 lakh
  4. DRs 0

Explanation

Recoverable amount is the higher of net selling price (95) and value in use (100), i.e., Rs 100 lakh. Impairment loss = carrying amount 120 - recoverable amount 100 = Rs 20 lakh. Option A wrongly uses net selling price (the lower figure), giving 25. Option C uses the difference between the two recoverable measures.

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