X Ltd. purchased a Property, Plant and Equipment four years ago for 150 lakhs and depreciates it at 10% p.a. on straight line method. At the end of…

Treatment of Impairment Loss As per AS 28 “Impairment of assets”, if the recoverable amount (higher of net selling price and its value in use) of an asset is less than its carrying amount, the carrying amount of the asset should be reduced to its recoverable amount. In the given case, net selling price is 64.50 lakhs (₹ 67.50 lakhs – 3lakhs) and value in use is 60lakhs. Therefore, recoverable amount will be - 64.50 lakhs. Impairment loss will be calculated as 10.50 lakhs [75lakhs (Carrying Amount after revaluation - Refer Working Note) less - 64.50 lakhs (Recoverable Amount)]. Thus impairment loss of 10.50 lakhs should be recognised as an expense in the Statement of Profit and Loss immediately since there was downward revaluation of asset which was already charged to Statement of Profit and Loss. Working Note: Calculation of carrying amount of the Property, Plant and Equipment at the end of the fourth year on revaluation (in lakhs) Purchase price of a Property, Plant and Equipment 150.00 Less: Depreciation for four years [(150 lakhs / 10 years) x 4 years] (60.00) Carrying value at the end of fourth year 90.00 Less: Downward revaluation charged to profit and loss account (15.00) Revalued carrying amount 75.00