PQR Ltd. is the company which has performed well in the past but one of its major assets, an item of equipment, suffered a significant and…

CA Final · Financial Reporting · MTP · January 2026
PQR Ltd. is the company which has performed well in the past but one of its major assets, an item of equipment, suffered a significant and unexpected deterioration in performance. Management expects to use the machine for a further four years after 31st March 20X6, but at a reduced level. The equipment will be scrapped after four years. The financial accountant for PQR Ltd. has produced a set of cash-flow projections for the equipment for the next four years, ranging from optimistic to pessimistic. CFO thought that the projections were too conservative, and he intended to use the highest figures each year. These were as follows: '000 Year ended 31st March 20X7 276 Year ended 31st March 20X8 192 Year ended 31st March 20X9 120 Year ended 31st March 20Y0 114 The above cash inflows should be assumed to occur on the last day of each financial year. The pre-tax discount rate is 9%. The machine could have been sold at 31st March 20X6 for 6,00,000 and related selling expenses in this regard could have been - 96,000. The machine had been revalued previously, and at 31st March 20X6 an amount of 36,000 was held in revaluation surplus in respect of the asset. The carrying value of the asset at 31st March 20X6 was - 6,60,000. The Indian government has indicated that it may compensate the company for any loss in value of the assets up to its recoverable amount. Calculate impairment loss, if any and revised depreciation of asset. Also suggest how Impairment loss, if any would be set off and how compensation from government be accounted for?

Suggested Answer and Working Notes:

Carrying amount of asset on 31st March 20X6 = 6,60,000 Calculation of Value in Use: Year ended Cash flow (₹) Discount factor @ 9% Amount (₹) 31 st March, 20X7 2,76,000 0.9174 2,53,202 31 st March, 20X8 1,92,000 0.8417 1,61,606 31 st March, 20X9 1,20,000 0.7722 92,664 31 st March, 20Y0 1,14,000 0.7084 80,758 Total (Value in Use) 5,88,230 Calculation of Recoverable amount: Particulars Amount (₹) Value in use 5,88,230 Fair value less costs of disposal (6,00,000 – 96,000) 5,04,000 Recoverable amount 5,88,230 (Higher of value in use and fair value less costs of disposal) Calculation of Impairment loss: Particulars Amount (₹) Carrying amount 6,60,000 Less: Recoverable amount (5,88,230) Impairment loss 71,770 Calculation of Revised carrying amount: Particulars Amount (₹) Carrying amount 6,60,000 Less: Impairment loss (71,770) Revised carrying amount 5,88,230 Calculation of Revised Depreciation: Revised carrying amount – Residual value Remaining life = (5,88,230 - 0) / 4 = 1,47,058 per annum Set off of Impairment loss: The impairment loss of 71,770 must first be set off against any revaluation surplus in relation to the same asset. Therefore, the revaluation surplus of 36,000 is eliminated against impairment loss, and the remainder of the impairment loss - 35,770 (₹ 71,770 - 36,000) is charged to profit and loss. Treatment of Government compensation: Any compensation by the government would be accounted for as such when it becomes receivable. At this time, the government has only stated that it may reimburse the company and therefore credit should not be taken for any potential government receipt.

Topics: Ind AS 36

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