Case: A cash-generating unit of Neela Glass Ltd has a carrying amount of ₹12,00,000. Its net selling price is ₹9,50,000. It is expected to generate net cash inflows of ₹4,00,000 at the end of each of the next 3 years; the appropriate discount rate is 10%. Under AS 28, the impairment loss (rounded to the nearest rupee) is:

Correct answer: C) ₹2,05,259

Explanation

Value in use = 4,00,000 x (1/1.1 + 1/1.1^2 + 1/1.1^3) = 4,00,000 x 2.4869 = ₹9,94,741 (rounded). Recoverable amount is the higher of net selling price (9,50,000) and value in use (9,94,741) = 9,94,741. Impairment loss = 12,00,000 - 9,94,741 = ₹2,05,259. Using net selling price alone overstates the loss, and AS 28 requires discounted, not undiscounted, cash flows.