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CA Intermediate · Advanced Accounting · AS 28 Impairment of Assets

Vindhya Cement Ltd. tests a CGU for impairment. Carrying amounts: Plant ₹50,00,000 and Building ₹30,00,000 (no goodwill). Recoverable amount of the CGU is ₹64,00,000. Net selling price of the Building alone is ₹27,00,000. As per AS 28, what impairment loss is allocated to the Building?

The Building is allocated ₹3,00,000. Pro rata allocation gives ₹6,00,000, but AS 28 prohibits reducing an asset below its net selling price of ₹27,00,000, so the loss is capped at ₹3,00,000, and the excess is reallocated to the other assets of the unit.

  1. A₹3,00,000Correct
  2. B₹6,00,000
  3. C₹10,00,000
  4. D₹4,00,000

Explanation

Total loss = 80,00,000 − 64,00,000 = ₹16,00,000. Pro rata, Building would get 16,00,000 × 30/80 = ₹6,00,000, which would reduce it to ₹24,00,000, below its net selling price of ₹27,00,000. AS 28 does not allow an asset to be reduced below the highest of its net selling price, value in use and zero, so Building's loss is limited to ₹3,00,000. The unallocated ₹3,00,000 is reallocated to Plant.

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