What is a CGU in accounting?
A cash-generating unit (CGU) is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount is calculated at the individual asset level.
What is a cash-generating unit (CGU)?
A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Goodwill acquired in a business combination is allocated to the acquirer’s CGUs that are expected to benefit from the business combination.
What is the carrying amount of the CGU?
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. to highlight certain factors that an entity may consider in identifying the cash-generating unit to which an asset belongs.
What is the recoverable amount of a CGU?
The recoverable amount of a CGU is the same as for an individual asset. The carrying amount of a CGU consists of assets directly and exclusively attributable to the CGU and an allocation of assets that are indirectly attributable on a reasonable and consistent basis to the CGU, including corporate assets and goodwill.
How do you define a CGU?
A Cash Generating Unit (CGU) is defined as the smallest identifiable group of assets that are able to generate cash inflows. Additionally, CGUs are mostly independent of cash inflows generated by other assets in other Cash Generating Units.
What is an example of a 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). The carrying amount of the CGU is made up of the carrying amounts of all the assets directly attributed to it.
Is a CGU an asset?
A CGU is the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups thereof.
What is a cash generating asset?
Cash-generating assets are assets held with the primary objective of generating a commercial return. An asset generates a commercial return when it is deployed in a manner consistent with that adopted by a profit-oriented entity.
Is cash included in CGU?
Answer: No. Warehouse X no longer generates cash inflows that are dependent on other assets forming CGU Y. Moreover, its value in use can be estimated to be close to its fair value less costs of disposal. Warehouse should therefore be tested for impairment separately.
Is goodwill a CGU?
Goodwill had previously been allocated to CGU A. The goodwill allocated to CGU A cannot be identified or associated with a lower-level asset group, except arbitrarily. CGU A is to be divided and integrated into three other CGUs: B, C and D.
What is a CGU in IFRS?
IFRS requires grouping by “cash generating unit” (“CGU”). A CGU is the smallest identifiable group of assets generating cash inflows that are largely independent of the cash inflows from other assets or groups of assets.
Is building a cash-generating unit?
Therefore, the building as a whole cannot be considered to generate cash inflows that are largely independent of the cash inflows from the entity as a whole. So, it is likely that the cash-generating unit for the building is M as a whole. IE22 The building is not held as an investment.
What is the carrying amount of a CGU?
The carrying amount of the cash‑generating unit is CU500, which is the carrying amount of the mine (CU1,000) less the carrying amount of the provision for restoration costs (CU500). Therefore, the recoverable amount of the cash‑generating unit exceeds its carrying amount.
What assets are included in a CGU?
The recoverable amount of a CGU is the same as for an individual asset. The carrying amount of a CGU consists of assets directly and exclusively attributable to the CGU and an allocation of assets that are indirectly attributable on a reasonable and consistent basis to the CGU, including corporate assets and goodwill.
How do you allocate goodwill to CGU?
For impairment testing, goodwill is allocated (IAS 36.80-87) to the CGU that benefits from the synergies of the related business combination. If goodwill cannot be allocated on a non-arbitrary basis to individual CGUs, it is allocated to groups of CGUs.
What are 3 types of assets?
Assets are generally classified in three ways:Convertibility: Classifying assets based on how easy it is to convert them into cash.Physical Existence: Classifying assets based on their physical existence (in other words, tangible vs. ... Usage: Classifying assets based on their business operation usage/purpose.
What is a CGU?
A cash-generating unit (CGU) is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.
Is X a separate cash generating unit?
X could sell its products in an active market and, so, generate cash inflows that would be largely independent of the cash inflows from Y. Therefore, it is likely that X is a separate cash-generating unit, although part of its production is used by Y (see paragraph 70 of IAS 36).
Can a CGU be larger than an operating segment?
To deal with this lack of clarity, the International Accounting Standards Board (IASB) has issued an amendment to IAS 36 to clarify that a CGU cannot be larger than an operating segment before aggregation. Entities should ensure their CGUs are aligned with their operating segments.
Roles of the cash-generating unit in the impairment review
A CGU serves two primary roles in the impairment review. It facilitates the testing of:
Identifying cash-generating units
The objective of identifying CGUs is to identify the smallest identifiable group of assets that generates largely independent cash inflows. CGUs are identified at the lowest level to minimise the possibility that impairments of one asset or group will be masked by a high-performing asset.
How we can help
We hope you find the information in this article helpful in giving you some insight into IAS 36. If you would like to discuss any of the points raised, please speak to your usual Grant Thornton contact or your local member firm.
Does CGU have goodwill?
Any CGU containing goodwill is tested for impairment annually. However, the way that entities choose to measure their goodwill and NCI affects the nature of the test and the amount of impairment loss recognised.
Can a CGU be larger than an operating segment?
To deal with this lack of clarity, the International Accounting Standards Board (IASB) has issued an amendment to IAS 36 to clarify that a CGU cannot be larger than an operating segment before aggregation. Entities should ensure their CGUs are aligned with their operating segments.
Existence of Active Market For The Output Produced
- IAS 36.70 states that if an active market exists for the output produced by an asset or group of assets, that asset or group of assets shall be identified as a CGU, even if some or all of the output is used internally. Moreover, internal pricing between CGUs should be adjusted in value in usecal…
Unused (Idle) Assets
- Entity A has a warehouse X that is a part of a CGU Y. Due to change in production process, the warehouse X is no longer used and the building remains empty. CGU Y is not impaired. Question: can the unused warehouse X still be a part of CGU Y? Answer: No. Warehouse X no longer generates cash inflows that are dependent on other assets forming CGU Y. Moreover, its value i…
Identification of CGU on A Country-By-Country Basis
- Parents of multinational groups that carry out operations through subsidiaries in different countries often give the management boards of each subsidiary the power to make largely independent decisions relating to activities on local market. For the purpose of local financial statements (prepared also under IFRS), management boards of each subsidiary often identify se…