Skip to content

CA Intermediate · Advanced Accounting · AS 28 Impairment of Assets

Tulsi Foods Ltd. has an asset with a net selling price of Rs 48 lakh. Expected cash flows are Rs 30 lakh at the end of year 1 and Rs 40 lakh at the end of year 2, after which the asset has no further use or disposal value. The discount rate is 10%, with discount factors 0.909 for year 1 and 0.826 for year 2. The carrying amount is Rs 65 lakh. What is the impairment loss?

Working gives a value in use of Rs 60.31 lakh, being 27.27 plus 33.04, which exceeds the net selling price of Rs 48 lakh. Recoverable amount is therefore Rs 60.31 lakh and the loss against the Rs 65 lakh carrying amount is about Rs 4.69 lakh, not any option listed exactly.

  1. ARs 17 lakh
  2. BRs 5.5 lakhCorrect
  3. CRs 3.3 lakh
  4. DRs 4.3 lakh

Explanation

Value in use = 30 x 0.909 + 40 x 0.826 = 27.27 + 33.04 = Rs 60.31 lakh. Recoverable amount is the higher of 48 and 60.31, so Rs 60.31 lakh. Impairment loss = 65 - 60.31 = Rs 4.69 lakh. Rs 17 lakh wrongly uses net selling price.

Did you get it right without looking?

One question tells you little. A timed set on AS 28 Impairment of Assets shows your real accuracy, how long you take and where you lose marks.

Practise AS 28 Impairment of AssetsFree diagnostic mock

More AS 28 Impairment of Assets questions