CHAPTER-5 Assets Based Accounting Standards

AS-28 : IMPAIRMENT OF ASSETS

Meaning of Impairment
The dictionary meaning of impairment of asset is weakening in value of asset. In other words
when the value of asset decreases we may call it impairment of an asset. As per AS-28 asset is
said to be impaired when carrying amount of asset is more than its recoverable amount.
What is carrying amount Carrying amount is the amount at which asset is shown in the Balance
Sheet. The asset is shown in Balance Sheet at its cost less accumulated depreciation or amortization
and accumulated impairment losses. Up till now in India the impairment losses are not accounted
for, therefore the asset is shown at its cost less depreciation, but after this accounting
standard is applicable the impairment losses on asset is to be accounted for and therefore the
asset to be shown in the Balance Sheet at its cost less depreciation less impairment loss.
What is recoverable amount
Recoverable amount of an asset is higher of—
 Net Selling Price
 Value in use
What is Impairment Loss
Impairment loss is calculated as under :— Recoverable amount minus carrying amount. In other
words if recoverable amount is equal to or more than carrying amount no impairment loss is
accounted for, and asset is not impaired.
Applicability
The accounting standard “Impairment of Assets” is applicable to all assets like fixed assets,
intangible assets but it does not apply to the following assets :—
 Inventories (Covered by AS-2)
 Asset arising from Construction Contracts (AS-7)
 Financial Asset (Covered by AS-13) and contractual right to receive cash like - Debtors
 Deferred Tax Asset (Covered by AS-22)
Accounting periods of standards - The standard is applicable for the accounting periods commencing
on or after 1-4-2004 for the following enterprises:
(i) Whose equity shares are listed in stock exchange or in the process of listing
(ii) Whose turnover exceeds 50 crores.
For all other enterprises the standard is effective from 1-4-2005.
How do we know that the asset has Impaired
At each Balance Sheet date the enterprise should assess whether there is any indication of
impairment of an asset if yes, the enterprise should estimate the recoverable amount if there
is no indication that an asset is impaired the enterprise needs not to calculate the recoverable
amount, indications of impairment may come from external sources or internal sources.
External indications - Following are the circumstances, which may indicate that an asset may
have impaired during the period.

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 Asset market value has declined.

 Due to change in technology, market conditions, legal regulations, there is an adverse effect
on the enterprise.
 Interest rate in the market has increased or a general expectation about return on investment
has increased. Generally these two rates also increases the discount rate, which will reduce
the present value of future cash flow from use of asset and may decrease the asset’s
recoverable amount materially.
Effect of impairment on depreciation/amortization
If there are indications that the asset may be impaired, and these indications are also providing
evidence that the remaining useful life or residual value of the asset needs review/adjustment,
the depreciation/ amortization should be reviewed as per AS-6 or AS-26 even if impairment loss is
not actually provided in books.
After the recognition of impairment loss the depreciation (amortization) charge for the asset
should be adjusted for future period to allocate revised carrying amount less its residual value
over its remaining useful life.
Recognition of an impairment loss for an individual asset
The amount of impairment loss will differ if asset is carried at historical cost and if carried at
revalued price.
If asset is carried at historical cost - Impairment losses will be recognized only when recoverable
amount of an asset is less than the carrying amount (historical cost less depreciation)
Amount of impairment loss, which is equal to carrying amount of asset minus recoverable
amount, this amount of loss, will be debited to Profit & Loss Account as expense.
If asset is carried at revalued amount- If asset is carried at revalued amount the amount of
impairment loss is calculated in the same way i.e.—
Carrying amount of Assets minus recoverable amount
(Which is revalued price
less depreciation)
However the recognition of impairment loss shall be as under :—
 Impairment loss equal to revaluation reserve (surplus) balance if any shall be set off against
revaluation surplus, and
 Impairment loss in excess of revaluation surplus balance shall be recognized as an expense
in profit and loss account.
Impairment loss for cash generating unit
What is cash generating unit- Till this time we have discussed how the impairment loss for
individual asset is determined and recognized. However sometimes it becomes difficult to
calculate the recoverable amount because cash flows to be derived from individual asset cannot
be calculated separately, as this individual asset in itself without the help of other assets cannot
generate the cash flows. Therefore for the purpose of identifying cash flows, asset can be grouped

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into a smallest unit and such a grouping of assets to facilitate the identification of cash flows
gives a new concept of cash generating unit.
Although cash generating unit is defined as the smallest group of asset for which cash flows
can be determined independently but sometimes aggregation of cash generating units become
necessary if each of the cash generating units cannot be DISPOSED of SEPARATELY even if cash
flows from each cash generating unit can be determined independently.
Impairment loss for discontinuing operation
As per para 113 of AS-28 the impairment loss shall depend the way the discontinuing operation is
being disposed. (Refer AS-24) if discontinuing operation is being sold/disposed of :— Substantially
in its entirety - The recoverable amount is determined for the discontinuing operation as a whole
and impairment loss if any is allocated among the assets of the discontinuing operation in accor-
dance with this standard i.e. AS-28.
As piecemeal sales - Then the recoverable amount is determined for individual assets unless
the assets are sold in group.
By abandomnent - The recoverable amount is determined for individual assets.
The carrying amount (recoverable amount) of a discontinuing operation includes carrying
amount or recoverable amount of any goodwill that can be allocated on a reasonable basis to the
discontinuing operation.
Recoverable amount of an individual asset cannot be determined
If recoverable amount of an individual asset cannot be determined, then this asset is grouped
in related cash generating unit and then determine whether the related cash generating unit is
impaired or not, no impairment loss is recognized for individual asset if related cash generating
unit is not impaired even if net selling price of an individual asset is less than the carrying amount.
Impairment loss and deferred tax
If an impairment loss is adjusted in accounts/financial statement, any related tax assets or
liabilities are also to be determined as per AS-22 “accounting for taxes on income”.
An enterprise should assess on each balance sheet date if impairment loss charged in prior years
is no longer exist or impairment loss charged earlier has decreased. If there are any indications
to this effect the enterprises should estimate the recoverable’ amount of that asset, indications
may be from:
 External sources
 Internal sources
External sources - The following is some of the indications:
 Market value of asset has increased
 Significant favourable effect for enterprises
 Market interest rates, return on investment has decreased. Internal sources - Indication
may be:
 Significant favourable changes in method of use of the asset

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 Asset’s performance significantly improved

 Evidence that economic performance of the asset is/will be better than expected.
Reversal of impairment loss for individual asset - Amount of impairment loss is calculated as -
Recoverable amount less carrying amount.
The following procedure to be followed for accounting of reversal of impairment loss:
 Reversal of impairment loss for asset to be treated as income.
Asset A/c Dr.
To Reversal of impairment
Reversal of impairment Dr.
To Profit & Loss A/c
 If asset is carried at revalued amount reversal of impairment loss to be treated like
revaluation increase.
 However if impairment loss on the same revalued asset was previously shown as an expense
in the profit and loss statement, reversal should be treated as income in profit and loss
statement.
 After reversal, increased carrying amount of an asset should not exceed the carrying amount
that would have been determined (net of amortization or depreciation) had no impairment
loss been recognized for the asset in prior accounting period, any increase in the carrying
amount above this carrying amount is revaluation profit.
 Depreciation (amortization) charge of the asset should be adjusted in future periods to
allocate asset’s revised carrying amount less its residual value (if any) over its remaining
useful life.
Reversal of impairment loss for a cash generating unit- Following steps to be followed:
- Reversal of impairment loss should be allocated to increase the carrying amount of the
assets of the unit. Firstly the asset other than goodwill on a pro rata basis and then to
goodwill.
 Reversal of impairment loss should be treated as income.
 After allocation of reversal of impairment loss carrying amount should be increased lower
of recoverable amount and the carrying amount that would have been determined (net of
amortization / depreciation) had no impairment loss been recognized.
Reversal of an impairment loss for goodwill- As per para 108 of AS-28 impairment loss of goodwill
should not be reversed unless :—
 Impairment loss earlier recognized caused by a specific external event of an exceptional
nature that is not expected to recur.
And
 Specific external event, which caused an impairment loss earlier, has reversed by subsequent
external event.

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The specific external event is the event which is outside the control of the enterprise like new
regulation that significantly adversely affected the operating activities or caused decrease in
profitability of the enterprise.
By reversing the impairment loss the carrying amount of goodwill will increase which indirectly
recognizes the increase in internally generated goodwill, which is prohibited by AS-26 “Intangible
Assets”.
Significant difference among AS-28, IFRS/IAS-36 and US GAAP
 US GAAP (SFAS 144) is significantly different in recognizing, measuring and reversing of
impairment loss than AS-28, IFRS/IAS-36, whereas AS-28 and IFRS/IAS-36 are almost similar.
 Recognition of impairment loss - As per AS-28 and IFRS/IAS-36, impairment loss is recognized
if carrying amount is more than the recoverable amount. While calculating recoverable
amount, “value in use” is assessed in terms of future discounted cash flow at approximate
rate whereas US GAAP estimates “value in use” without discounted cash flow, rather it
specifies only aggregate of future cash flows. Other thing remaining equal, impairment
losses will be recognized sooner in AS-28 and in IFRS/IAS-36 than under US GAAP.
 Measurement of Impairment loss - Under US GAAP impairment loss is excess of carrying
amount over fair value whereas under AS-28 and IFRS/IAS-36, it is excess of carrying amount
over recoverable amount. The recoverable amount is higher of net selling price and value in
use.
 Impairment loss will substantially different in US GAAP and AS-28, IFRS/IAS-36 however if
net selling price is more than value in use and cost of disposal is nominal, the impairment
loss to be recognized in US GAAP and AS-28, FRS/IAS-36 may be comparable.
 AS-28, IFRS/IAS-36 calculate net selling price by reducing cost of disposal from its fair value
irrespective of the fact whether asset is to be disposed of or not. Whereas under US GAAP,
cost of disposal is reduced only when the asset is to be disposed of.
 US GAAP prohibits the reversal of impairment loss whereas the reversal of impairment loss
is permitted as per AS-28, IFRS/IAS-36.
 While allocating goodwill or corporate assets under US GAAP only “bottom up” test is
followed while under AS-28, IFRS/IAS-36 both the test “bottom up” and “Top down” are
followed.
 AS-28, IFRS/IAS-36 is more detailed as compared to US GAAP; there will be substantial difference
in measurement, allocation and subsequent depreciation resulting from impairment loss.

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CLASS WORK
Q-1 Ergo Industries Ltd. gives the following estimates of cash flows relating to Property, Plant
and Equipment on 31-12-20X1. The discount rate is 15%.
Year Cash Flow (` in lakhs)
20X2 4000
20X3 6000
20X4 6000
20X5 8000
20X6 4000
Residual value at the end of 20X6 = ` 1000 lakhs
Property, Plant and Equipment purchased on 1-1-20XX = ` 40,000 lakhs
Useful life = 8 years
Net selling price on 31-12-20X1 = ` 20,000 lakhs
Calculate on 31-12-20X1:
(a) Carrying amount at the end of 20X1
(b) Value in use on 31-12-20X1
(c) Recoverable amount on 31-12-20X1
(d) Impairment loss to be recognized for the year ended 31-12-20X1
(e) Revised carrying amount
(f ) Depreciation charge for 20X2.
Note: The year 20XX is the immediate preceding year before the year 20X0.
Q-2 X Ltd. is having a plant (asset) carrying amount of which is ` 100 lakhs on 31.3.20X1. Its
balance useful life is 5 years and residual value at the end of 5 years is ` 5 lakhs. Estimated
future cash flow from using the plant in next 5 years are:

For the year ended on Estimated cash flow (` in lakhs)

31.3.20X2 50
31.3.20X3 30
31.3.20X4 30
31.3.20X5 20
31.3.20X6 20
Calculate “value in use” for plant if the discount rate is 10% and also calculate the recoverable
amount if net selling price of plant on 31.3.20X1 is ` 60 lakhs.
Q-3 G Ltd., acquired a machine on 1st April, 20X0 for ` 7 crore that had an estimated useful life
of 7 years. The machine is depreciated on straight line basis and does not carry any residual
value. On 1st April, 20X4, the carrying value of the machine was reassessed at ` 5.10 crore
and the surplus arising out of the revaluation being credited to revaluation reserve. For the
year ended March, 20X6, conditions indicating an impairment of the machine existed and
the amount recoverable ascertained to be only ` 79 lakhs. You are required to calculate the

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loss on impairment of the machine and show how this loss is to be treated in the books of G
Ltd. G Ltd., had followed the policy of writing down the revaluation surplus by the increased
charge of depreciation resulting from the revaluation.
Q-4 X Ltd. purchased a Property, Plant and Equipment four years ago for ` 150 lakhs and
depreciates it at 10% p.a. on straight line method. At the end of the fourth year, it has
revalued the asset at ` 75 lakhs and has written off the loss on revaluation to the profit
and loss account. However, on the date of revaluation, the market price is ` 67.50 lakhs and
expected disposal costs are ` 3 lakhs. What will be the treatment in respect of impairment
loss on the basis that fair value for revaluation purpose is determined by market value and
the value in use is estimated at ` 60 lakhs?
Q-5 A publisher owns 150 magazine titles of which 70 were purchased and 80 were self-created.
The price paid for a purchased magazine title is recognized as an intangible asset. The costs
of creating magazine titles and maintaining the existing titles are recognized as an expense
when incurred. Cash inflows from direct sales and advertising are identifiable for each
magazine title.
Titles are managed by customer segments. The level of advertising income for a magazine
title depends on the range of titles in the customer segment to which the magazine title
relates. Management has a policy to abandon old titles before the end of their economic
lives and replace them immediately with new titles for the same customer segment. What
is the cash-generating unit for an individual magazine title?
Ans. A publisher owns 150 magazine titles of which 70 were purchased and 80 were self-created.
The price paid for a purchased magazine title is recognized as an intangible asset. The costs
of creating magazine titles and maintaining the existing titles are recognized as an expense
when incurred. Cash inflows from direct sales and advertising are identifiable for each
magazine title.
Titles are managed by customer segments. The level of advertising income for a magazine
title depends on the range of titles in the customer segment to which the magazine title
relates. Management has a policy to abandon old titles before the end of their economic
lives and replace them immediately with new titles for the same customer segment. What
is the cash-generating unit for an individual magazine title?
Q-6 An asset does not meet the requirements of environment laws which have been recently
enacted. The asset has to be destroyed as per the law. The asset is carried in the Balance
Sheet at the year end at ` 6,00,000. The estimated cost of destroying the asset is ` 70,000.
How is the asset to be accounted for?
Ans. An asset does not meet the requirements of environment laws which have been recently
enacted. The asset has to be destroyed as per the law. The asset is carried in the Balance
Sheet at the year end at ` 6,00,000. The estimated cost of destroying the asset is ` 70,000.
How is the asset to be accounted for?

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Q-7 Venus Ltd. has a fixed asset, which is carried in the Balance Sheet on 31.3.20X1 at ` 500
lakhs. As at that date the value in use is ` 400 lakhs and the net selling price is ` 375 lakhs.
From the above data:
(i) Calculate impairment loss.
(ii) Prepare journal entries for adjustment of impairment loss.
(iii) Show, how impairment loss will be shown in the Balance Sheet.
Q-8 From the following details of an asset
(i) Find out impairment loss
(ii) Treatment of impairment loss
(iii) Current year depreciation
Particulars of asset:
Cost of asset ` 56 lakhs
Useful life period 10 years
Salvage value Nil
Current carrying value ` 27.30 lakhs
Useful life remaining 3 years
Recoverable amount ` 12 lakhs
Upward revaluation done in last year ` 14 lakhs
Q-9 A plant was acquired 15 years ago at a cost of ` 5 crores. Its accumulated depreciation as
at 31st March, 20X1 was ` 4.15 crores. Depreciation estimated for the financial year 20X1-
20X2 is ` 25 lakhs. Estimated Net Selling Price as on 31st March, 20X1 was ` 30 lakhs, which
is expected to decline by 20 per cent by the end of the next financial year.
Its value in use has been computed at ` 35 lakhs as on 1st April, 20X1, which is expected to
decrease by 30 per cent by the end of the financial year.
(i) Assuming that other conditions for applicability of the impairment Accounting
Standard are satisfied, what should be the carrying amount of this plant as at 31st
March, 20X2?
(ii) How much will be the amount of write off for the financial year ended 31st March,
20X2?
(iii) If the plant had been revalued ten years ago and the current revaluation reserves
against this plant were to be ` 12 lakhs, how would you answer to questions (i) and
(ii) above?
(iv) If the value in use was zero and the enterprise were required to incur a cost of ` 2
lakhs to dispose of the plant, what would be your response to questions (i) and (ii)
above?
Q-10 NDA Ltd. acquired a machine for ` 32,00,000 on 30-11-2007. The machine has five years life
with ` 5,00,000 salvage value and was depreciated using straight line method. On 31-3-2009
a test for impairment reveals the following —
(a) Present value of future cash flow 13,50,000

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(b) Net selling price 15,40,000

(c) Salvage value estimated Nil
Assuming loss for impairment is recognized for the year 31-3-2009 What should be the
depreciation expenses for the year ended 31-3-2010 ?
Q-11 Uttaranchal Industries Ltd. gives the following estimates of cash flows relating to fixed
asset on 31-12-2005 The discount rate is 15%.
Year Cash flow (` in lakhs)
2006 2,000
2007 3000
2008 3,000
2009 4,000
2010 2,000
Residual value at the end of 2010 500
Fixed Asset purchased on 1-1-2003 for ` 20,000 lakhs Useful life 8 years
Residual value estimated ` 500 lakhs at the end of 8 years. Net selling price ` 10,000 lakhs.
Calculate on 31-12-2005 :
(a) Carrying amount at the end of 2005.
(b) Value in use on 31-12-2005.
(c) Recoverable amount on 31-12-2005.
(d) Impairment loss to be recognized for the year ended 31-12-2005.
(e) Revised carrying amount.
(f ) Depreciation charge for 2006.
Q-12 Garhwal Industries Ltd purchased a machine on 1-1-2009 for ` 50 lakhs having useful life of
5 years on 31-12-2010 its carrying amount is Rs 30 lakhs, due to fire, in a factory, there is
some damage to machinery but still it is working, its net selling price on 31-12-2010 is Rs
22 lakhs The machine does not generate independent cash inflows from use The smallest
group of asset that includes this machine generates cash inflows largely independent of
other assets, the carrying amount of group of assets to which this machine belongs is Rs
200 lakhs and the recoverable amount of group of assets (cash generating unit) to which
this machine belongs is Rs 220 lakhs
Calculate the impairment loss for the machine.
Q-13 NDA Corporation acquired Smith’s Ltd business on 31-03-2005 for ` 5,000 lakhs The details
of acquisition are as under —
Fair value of identifiable asset 4000 lakhs
Goodwill (to be amortised in 5 years) 1000 lakhs
The anticipated useful life of acquired assets is 8 years NDA uses straight line method of
depreciation with no residual values is anticipated On 31-3-2007 NDA Corporation estimated
the significant decline in production due to changed Government policies, the net selling

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price of identifiable asset is not determinable The cash flow forecast based on recent
financial budget for next 6 years after considering changed Govt policies are as follows,
incremental financing cost is 10% which represent current market assessment of the time
value of money.
(` in lakhs)
Year Cash flow Year Cash flow
2008 700 07 500
2009 700 08 500
2010 700 09 500
Acquired business is a cash generating unit required —
(a) Value in use
(b) Impairment loss
(c) Revised carrying amount assets on 31-3-2007.
Q-14 On 31-3-2008 NDA Industries Ltd. acquired Induga Ltd. for ` 600 lakhs. Induga Ltd. has three
cash-generating unit X, Y & Z with net fair values of ` 240 lakhs, 160 lakhs and 80 lakhs
respectively. NDA Industries Ltd. recognizes goodwill of ` 120 lakhs. For the accounting year
ended 31-3-2010, X unit incurred substantial losses its recoverable amount is estimated to
be ` 270 lakhs carrying amount of different cash-generating units are as under :—
X 260 lakhs
Y 240 lakhs
Z 160 lakhs
Goodwill 24 lakhs
684 lakhs
Calculate the impairment loss to be recognized in financial statement if goodwill can be
allocated on reasonable and consistent basis to cash-generating unit.
Q-15 If in Q.5. the goodwill cannot be allocated on reasonable basis to cash-generating unit ‘X’.
The recoverable amount of all the three cash-generating unit which is immediately larger
cash-generating unit to which goodwill can be allocated is ` 680. Calculate impairment
loss.
Q-16 Uttaranchal Industries Ltd. has three cash-generating units X, Y & Z. Carrying amount on
31-3-2010 of X, Y & Z is ` 400 lakhs, ` 600 lakhs and ` 800 lakhs respectively.
Due to adverse technological changes effecting Uttaranchal Industries Ltd., the company
conduct impairment test of each of its cash-generating units on 31-3-2010.
Company has corporate assets as head office building of ` 600 lakhs and Research and
Development (R&D) Centre of ` 200 lakhs carrying amount of building can be allocated on
reasonable basis but R & D centre cannot be allocated on reasonable basis to X, Y & Z cash
generating units, the remaining useful life of ‘X’ units 10 years and Y & Z is 20 years.
The H.O. assets are depreciated on straight-line basis.

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Net selling price of each cash-generating unit is not determinable. Hence recover able
amount is based on “value in use” 15% discount rate fairly indicate time value of money.
Calculate impairment loss to be recognized in financial statement for the year ended 31-3-
2009 and allocation of impairment loss, also calculate the revised carrying amount of assets
of all cash-generating units.
Future cash flow for X, Y & Z and for Uttaranchal Industries Ltd. as a whole at the end of
31-3-2010 is below
(` in lakhs)
Year X Y Z (Uttaranchal Ltd.
as a whole)
1-5 140 each yr 100 each yr 120 each yr 370 each yr
6-10 200 each yr 130 each yrs 240 each yr 650 each yr
11-20 - 82 each yrs 230 each yr 446 each yr
Q-17 Uttaranchal Industries Ltd., which is in a business of manufacturing and export of its
product. Sometimes, back in 2008, the Govt. put restriction on export of goods exported by
Uttaranchal Industries Ltd. due to that restriction Uttaranchal Industries Ltd impaired its
asset Uttaranchal Industries acquired at the end of 2008 ` 4000 lakhs identifiable assets and
paid ` 6000 lakhs, balance is treated as goodwill The useful life of the identifiable assets are
15 years and depreciated on straight line basis When Govt put the restriction at the end of
2008, the company recognized the impairment loss by determining the recoverable amount
of assets of ` 2720 lakhs. In 2010 Govt lifted the restrictions imposed on the export and
due to this favourable change Uttaranchal Industries Ltd. re-estimate recoverable amount,
which was estimated of ` 3,420 lakhs.
Required :—
(a) Calculation and allocation of impairment loss in 2008
(b) Reversal of an impairment loss and its allocation as per AS-28 in 2010.
Q-18 During the year ended 31-03-2010 Induga Ltd determined that there had been a significant
decrease in market value of its equipment used in manufacturing process on 31-3-2010
Induga Ltd compiled the information below —
1 Original cost of equipment 5,000,000
2 Accumulated depreciation 3,000,000
3 Value in use 1,500,000
4. Net selling price 1,600,000
What is the amount of impairment loss should be recognized in Induga Ltd profit / loss
statement for the year 31-3-2010 ?
Q-19 At the end of 2006, X Ltd were having the following assets at their carrying amount:
Identifiable Assets 600 lakhs
Goodwill 100 lakhs

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The goodwill is being amortised @ of ` 25 lakhs per annum and identifiable assets are being
depreciated @ 25% per annum WDV. The recoverable amount of these assets at the end of
1998 is estimated ` 550 lakhs. The X Ltd recognized the impairment loss in 2006 as per AS-
28 However at the end of 2010. X Ltd re estimate the recoverable amount due to favourable
condition for the business, the recoverable amount was estimated at ` 250 lakhs
Required —
(a) Calculate the Impairment loss to be recognized in 2006 and allocation thereof
(b) Calculate the reversal of impairment loss in 2010 and its allocation

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MCQS
1. If there is indication that an asset may be impaired but the recoverable amount of the
asset is more than the carrying amount of the asset, the following are true:
(a) No further action is required and the company can continue the asset in the books at
the book value itself.
(b) The entity should review the remaining useful life, scrap value and method of
depreciation and amortization for the purposes of AS 10.
(c) The entity can follow either (a) or (b).
(d) The entity should review the scrap value and method of depreciation and amortization
for the purposes of AS 10.
2. In case Goodwill appears in the Balance Sheet of an entity, the following is true:
(a) Apply Bottom up test if goodwill cannot be allocated to CGU (cash generating unit)
under review.
(b) Apply Top down test if goodwill cannot be allocated to CGU (cash generating unit)
under review.
(c) Apply both Bottom up test and Top down test if goodwill cannot be allocated to CGU
(cash generating unit) under review.
(d) Apply either Bottom up test or Top down test if goodwill cannot be allocated to CGU
(cash generating unit) under review.
3. In case of Corporate assets in the Balance Sheet of an entity, the following is true:
(a) Apply Bottom up test if corporate assets cannot be allocated to CGU (cash generating
unit) under review.
(b) Apply Top down test if corporate assets cannot be allocated to CGU (cash generating
unit) under review.
(c) Apply both Bottom up test and Top down test if corporate assets cannot be allocated
to CGU (cash generating unit) under review.
(d) Apply either Bottom up test or Top down test if corporate assets cannot be allocated
to CGU (cash generating unit) under review.
4. In case of reversal of impairment loss, which statement is true:
(a) Goodwill written off can never be reversed.
(b) Goodwill written off can be reversed without any conditions to be met.
(c) Goodwill written off can be reversed only if certain conditions are met.
(d) Goodwill written off can be reversed.

Answers
1 (b) 2 (c) 3 (c) 4 (c)

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HOME WORK
Q-1 Good Drugs and Pharmaceuticals Ltd. acquired a sachet filling machine on 1st April, 20X1
for ` 60 lakhs. The machine was expected to have a productive life of 6 years. At the end of
financial year 20X1-20X2 the carrying amount was ` 41 lakhs. A short circuit occurred in this
financial year but luckily the machine did not get badly damaged and was still in working
order at the close of the financial year. The machine was expected to fetch ` 36 lakhs, if
sold in the market. The machine by itself is not capable of generating cash flows. However,
the smallest group of assets comprising of this machine also, is capable of generating cash
flows of ` 54 crore per annum and has a carrying amount of ` 3.46 crore. All such machines
put together could fetch a sum of ` 4.44 crore if disposed. Discuss the applicability of
Impairment loss.
Ans. Good Drugs and Pharmaceuticals Ltd. acquired a sachet filling machine on 1st April, 20X1
for ` 60 lakhs. The machine was expected to have a productive life of 6 years. At the end of
financial year 20X1-20X2 the carrying amount was ` 41 lakhs. A short circuit occurred in this
financial year but luckily the machine did not get badly damaged and was still in working
order at the close of the financial year. The machine was expected to fetch ` 36 lakhs, if
sold in the market. The machine by itself is not capable of generating cash flows. However,
the smallest group of assets comprising of this machine also, is capable of generating cash
flows of ` 54 crore per annum and has a carrying amount of ` 3.46 crore. All such machines
put together could fetch a sum of ` 4.44 crore if disposed. Discuss the applicability of
Impairment loss.

CA Intermediate | Paper-1 | Advanced Accounting 269