Tiny Ltd. deals in trading of cars across India. It became 100% subsidiary of Any Ltd. on 1st April, 2022 at a purchase consideration of 64 crores.…

CA Final · Financial Reporting · PYQS · May 2025
Tiny Ltd. deals in trading of cars across India. It became 100% subsidiary of Any Ltd. on 1st April, 2022 at a purchase consideration of 64 crores. At the time of acquisition, the fair value of the net identifiable assets of Tiny Ltd. was - 51 crores and goodwill was - 13 crores. The useful life of Tiny Ltd.'s assets as on 1st April, 2022 was estimated to be 15 years with no residual value. Any Ltd. follows straight line depreciation method. On 31st March 2024, the government issued new guidelines due to which Tiny Ltd. had to close few of its showrooms. As a result, Tiny Ltd.'s revenue was estimated to reduce by 30%. This adverse change in marketplace and regulatory conditions indicated impairment. As a result, Any Ltd. had to estimate the recoverable amount of goodwill and net assets of Tiny Ltd. on 31st March 2024. No independent cash inflows can be identified to any individual assets. So, the entire operation of Tiny Ltd. was treated as a CGU. Due to the regulatory entangle it was not possible to determine the selling price of Tiny Ltd. as a CGU. Its value in use was estimated by the management at - 35 crores. Recently, on 31st March, 2025, the government withdrew the guidelines issued on 31st March, 2024. The management expects a favourable change in net cash flows. The recoverable amount of Tiny Ltd.'s net asset is re-estimated. The value in use is expected to be - 52 crores and fair value less cost to disposal is expected to be - 48 crores. You are required to: (i) Calculate the impairment loss, if any, as on 31st March 2024. (ii) Also advise the accounting treatment for reversal of impairment loss and the subsequent depreciation thereon.

Suggested Answer and Working Notes:

Since the fair value less costs of disposal is not determinable the recoverable amount of the CGU is its value in use. The carrying amount of the assets of the CGU on 31st March, 2024 is as follows: Calculation of Impairment loss Goodwill Other assets Total Historical Cost 13.00 51.00 64.00 Accumulated Depreciation [(51/15) x 2] (6.80) (6.80) Carrying Amount 13.00 44.20 57.20 Impairment Loss (13.00) (9.20) (22.20) Revised Carrying Amount Impairment Loss = Carrying Amount – Recoverable Amount (₹ 57.20 crore - 35 crore) = ₹ 22.20 crore is charged to Statement of Profit and Loss for the period ending 31st March, 2024 as impairment loss. Impairment loss is allocated first to goodwill - 13 crore and remaining loss of 9.20 crore (₹ 22.20 crore - 13 crore) is allocated to the other assets. Reversal of Impairment loss Reversal of impairment loss is recognised subject to that the impairment loss on goodwill cannot be reversed. The increased carrying amount of an asset after reversal of an impairment loss not to exceed the carrying amount that would have been determined had no impairment loss been recognised in prior year. Calculation of carrying amount of identifiable assets had no impairment loss is recognised ₹ in crore Historical Cost 51.00 Accumulated Depreciation for 3 years [(51/15) x 3] (10.20) Carrying amount had no impairment loss is recognised on 31st March, 2025 40.80 Carrying amount of other assets after recognition of impairment loss ₹ in crore Carrying amount on 31st March, 2024 35.00 Accumulated Depreciation for 1 year [(35 /13) x 1] [rounded off to nearest two decimal] (2.69) Carrying amount on 31st March, 2025 32.31 1. Recoverable amount on 31st March, 2025 would be - 52 crore [i.e. higher of fair value less costs of disposal (₹ 48 crore) and value in use (₹ 52 crore)] 2. The impairment loss recognised previously can be reversed only to the extent of lower of re-estimated carrying amount (₹ 40.80 crore) and recoverable amount (₹ 52 crore) i.e. ₹ 40.80 crore. 3. Impairment loss reversal will be - 8.49 crore i.e. (₹ 40.80 crore - 32.31 crore). This amount is recognised as income in the statement of profit and loss for the year ended 31st March, 2025. 4. The carrying amount of other assets at 31st March, 2025 after reversal of impairment loss will be - 40.80 crore. 5. From 1st April, 2025, the depreciation charge will be - 3.40 crore i.e. (₹ 40.80 crore/12).

Topics: Ind AS 36

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