Syllabus C. Reporting The Financial Performance Of A Range Of Entities C2. Non Current Assets

C2a. Cash Generating Units 7 / 16

Syllabus C2a)

Discuss and apply the recognition, derecognition and measurement of non-current assets including impairments and revaluations.

Sometimes individual assets do not generate cash inflows so the calculation of VIU is impossible

In such a case then the asset will belong to a larger group that does generate cash.

This is called a cash generating unit (CGU) and it is the carrying value of this which is then tested for impairment

Recoverable amount should then be determined for the asset's cash-generating unit (CGU)

CGU - A restaurant

For example, the tables in a restaurant do not generate cash. 

They do belong to a larger CGU though (the restaurant itself). 

It is the restaurant that is then tested for impairment

The carrying amount of the CGU is made up of the carrying amounts of all the assets directly attributed to it.

Added to this will be assets that are not directly attributed such as head office and a portion of goodwill.


A subsidiary was acquired, which included 3 cash generating units and the goodwill for the whole subsidiary was 40m

Each CGU would be allocated part of the 40 according to the carrying amount of the assets in each CGU as follows:

CGU 1 2 3
NBV 200 200 400
Goodwill 10 10 20

A CGU to which goodwill has been allocated (like the 3 above) shall then be tested for impairment at least annually by comparing the carrying amount of the unit, including the goodwill, with the recoverable amount of the CGU

If the carrying amount of the unit exceeds the recoverable amount of the unit, the entity must recognise an impairment loss (down to the unit’s RA)

Order of Impairment

But the problem is what do you impair first - the assets or the goodwill in the unit?

The impairment loss is allocated in the following order:

  1. Reduce any goodwill allocated to the CGU

  2. Reduce the assets of the unit pro rata

Note: The carrying amount of an asset should not be reduced below its own recoverable amount


The following carrying amounts were recorded in the books of a restaurant immediately prior to the impairment:

Goodwill 100
Property, plant and equipment  100
Furniture and fixtures  100

The fair value less costs to sell of these assets is $260m whereas the value in use is $270m

Required: Show the impact of the impairment


Recoverable amount is 270 - so the CV of the CGU needs to be reduced from 300 to 270 = 30

This 30 reduces goodwill down to 70