Nancy Ltd. owns various machines including a machine used in the manufacture of air conditioners. The performance of this machine deteriorated…
CA Final · Financial Reporting · PYQS · September 2025
Nancy Ltd. owns various machines including a machine used in the manufacture of air conditioners. The performance of this machine deteriorated significantly in last few months. This machine is expected to work for next five years after 31 st March, 2025 at a reduced level and after that it will be scrapped. The cash flow projections for the machine for the next five years are as follows: Year 2025-2026 2026-2027 2027-2028 2028-2029 2029-2030 Amount in ₹ 24,70,000 18,60,000 16,30,000 10,10,000 8,50,000 Additional Information (i) The above cash inflows should be assumed to occur on the last day of each financial year. (ii) The pre-tax discount rate is 10%. Present value factor of 1at 10% is as under: 2025-2026 2026-2027 2027-2028 2028-2029 2029-2030 0.909 0.826 0.751 0.683 0.621 (iii) The machine could have been sold at 31 st March, 2025 for 60,00,000 and related selling expenses in this regard could have been - 11,50,000. (iv) The machine had been revalued previously, and at 31 st March, 2025 an amount of 3,80,000 was held in revaluation surplus in respect of this machine. (v) The carrying value of the machine at 31 st March, 2025 was - 68,20,000. You are required to calculate impairment loss for the year 2024-2025, if any and revised depreciation of the machine for subsequent years. The machine is depreciated on SLM basis.
Suggested Answer and Working Notes:
Calculation of Value in Use Year ended Cash flow (₹) Discount factor @ 9% Amount (₹) 31 st March, 2026 24,70,000 0.909 22,45,230 31 st March, 2027 18,60,000 0.826 15,36,360 31 st March, 2028 16,30,000 0.751 12,24,130 31 st March, 2029 10,10,000 0.683 6,89,830 31 st March, 2030 8,50,000 0.621 5,27,850 Total (Value in Use) 62,23,400 Calculation of Recoverable Amount Particulars Amount (₹) Value in use 62,23,400 Fair value less costs of disposal (60,00,000 – 11,50,000) 48,50,000 Recoverable amount (Higher of value in use and fair value less costs of disposal) 62,23,400 Calculation of Impairment Loss Particulars Amount (₹) Carrying amount 68,20,000 Less: Recoverable amount (Revised carrying amount) (62,23,400) Impairment loss 5,96,600 Set off of Impairment Loss: The impairment loss of 5,96,600 must first be set off against any revaluation surplus in relation to the same asset. Therefore, the revaluation surplus of 3,80,000 is eliminated against impairment loss, and the remainder of the impairment loss - 2,16,600 (₹ 5,96,600 - 3,80,000) is charged to profit and loss. Calculation of Revised Carrying Amount Particulars Amount (₹) Carrying amount 68,20,000 Less: Impairment loss (5,96,600) Revised carrying amount 62,23,400 Calculation of Revised Depreciation: (Revised carrying amount – Residual value)/Remaining life Revised Depreciation = (62,23,400 - 0)/5 = 12,44,680 per annum
Topics: Ind AS 36
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