U Limited had purchased a production plant for 9.00 lakhs on 1st April, 2022. The useful life of the plant is 9 years and is depreciated on straight…

As per para 6 of Ind AS 105, an entity shall classify a non-current asset as held for sale if its carrying amount is recovered principally through a sale transaction rather than through continuing use. Further, paras 7 and 8 of Ind AS 105 inter alia states that the asset must be available for immediate sale in its present condition and its sale must be highly probable i.e. the management must be committed to a plan to sell the asset and the sale should be expected to be completed within one year from the date of classification. Moreover, para 55 of Ind AS 16 states that depreciation does not cease when the asset becomes idle or is retired from active use unless the asset is fully depreciated. Going by the guidance given above, since the management has temporarily stopped the production due to decline in demand and had no intention to sell the asset within one year, the classification of the asset as held for sale by the accountant of U Ltd. is not correct. Also, U Ltd. shall not stop charging depreciation or treat the plant as held for sale because its carrying amount will be recovered principally through continuing use to the end of their economic life. The working of the same for presenting in the balance sheet is given as below: Calculation of carrying amount as on 31st March, 2025 ₹ Purchase Price of Production Plant 9,00,000 Less: Accumulated depreciation (9,00,000/ 9 years) x 3 years (3,00,000) 6,00,000 Less: Impairment loss (Refer W.N.) (1,00,000) Fair value less cost to sell the Production Plant as on 31st March, 2025 5,00,000 Balance Sheet (extracts) as on 31st March 2025 Assets ₹ Non-Current Assets Property, Plant and Equipment 5,00,000 Working Note: Computation of Impairment Loss Fair value less cost to sell the Plant = 5,00,000 Value in Use = Nil (since plant has temporarily not been used for manufacturing due to decline in demand) Recoverable amount = Higher of fair value less cost to sell and value in use i.e.5,00,000 Impairment loss = Carrying amount – Recoverable amount = 6,00,000 -5,00,000 = 1,00,000