OR A machine was acquired by Zest Ltd. on 01/04/2019 for 60 lakhs. It had a useful life of 6 years. The machine is depreciated on straight line…
CA Intermediate · Advanced Accounting · PYQS · May 2025
OR A machine was acquired by Zest Ltd. on 01/04/2019 for 60 lakhs. It had a useful life of 6 years. The machine is depreciated on straight line basis and does not carry any residual value. On 01/04/2022, the carrying value of the machine was reassessed at 36 lakhs. The surplus arising out of the revaluation being credited to revaluation reserve. For the year ended March 2024, conditions indicating an impairment of the existed machine and the amount recoverable ascertained to be 9 lakhs. You are required to calculate the loss on impairment of the machine and show how this loss is to be treated in the books of Zest Ltd. The company had followed the policy of writing down the revaluation surplus by the increased charge of depreciation resulting from the revaluation.
Suggested Answer and Working Notes:
Statement Showing Impairment Loss (in lakhs) Carrying amount of the machine as on 1st April, 2019 60 Depreciation for 3 years i.e. 2019-2020 to 2021-2022 [60 Lakh / 6 years x 3 years] (30) Carrying amount as on 31.03.2022 30 Add: Upward Revaluation (credited to Revaluation Reserve account) 6 Carrying amount of the machine as on 1st April, 2022 (revalued) 36 Less: Depreciation for 2 years i.e. 2022-2023 & 2023-2024 [36 Lakh / 3 years x 2 years] (24) Carrying amount as on 31.03.2024 12 Less: Recoverable amount (9) Impairment loss 3 Less: Balance in revaluation reserve as on 31.03.2024: 6 Less: Enhanced depreciation met from revaluation reserve 2022-2023 & 2023-2024 = [(12 – 10) x 2 years] (2) Impairment loss set off against revaluation reserve balance as per para 58 of AS 28 "Impairment of Assets" (2) Impairment Loss to be debited to profit and loss account 1
Topics: As 28, Introduction to Accounting Standards
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