what is cgu in accounting

What does CGU mean in finance?

Definition of CGU. CGU s" means cash generating units and based on managements' judgement, represents the lowest level at which there is identifiable cash inflows that are largely independent of the cash inflows of other groups of assets or properties;

What is a cash generating unit (CGU)?

See paragraphs IAS 36.66-73 for more discussion on identification of cash generating units. 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.

Is it possible to keep the same CGU in separate financial statements?

Question: In separate financial statements, is it possible for Entity A to keep the same CGU consisting of assets held directly by A and, this time, investments in subsidiaries X and Y? Answer: Yes.

What is the difference between CGU and value-in-use?

CGU means cash generating unit, a property grouping used for financial accounting purposes. Value- in-use is the present value of the future cash flows expected to be derived from the CGU, or group of CGUs.

What is CGU example?

Examples of CGUs include: an individual factory, a shop (from a chain of stores), etc… When calculating the carrying amount of an CGU we must: Include all the assets that can be directly attributed to the cash flows. Exclude liabilities, unless the recoverable amount cannot be determined without the liability.

How do you identify a CGU?

Put simply, identifying CGUs involves dividing the entity into clearly identifiable components. Because the CGU definition is based on cash inflows, the division process should focus on an entity's sources of revenue and how assets are utilised in generating those revenues.

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.

How would you calculate the value in use of a CGU?

Value in use equals the present value of the cash flows generated by an asset or a cash generating unit. Impairment loss, if any, under IFRS is determined by comparing the carrying amount of an asset of CGU to the higher of the fair value less cost to sell or the value in use of the asset.

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.

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 cash generation?

money produced by a company after all its costs have been paid: Their results were notable for increased margins and strong cash generation.

Is cash included in the carrying value of a CGU?

To perform a meaningful comparison between the carrying amount of the CGU and its recoverable amount, the liability is also deducted from the CGU's carrying amount and the cash flows from settling the liability are included in the value in use (VIU) calculation.

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.

What assets are included in a CGU?

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 is aasb136?

The Australian Accounting Standards Board made Accounting Standard AASB 136 Impairment of Assets under section 334 of the Corporations Act 2001 on 14 August 2015. This compiled version of AASB 136 applies to annual periods beginning on or after 1 July 2021 but before 1 January 2023.

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.

Allocating goodwill to groups of CGUs

IAS 36 acknowledges that sometimes goodwill cannot be allocated to individual CGUs on a non-arbitrary basis. It therefore allows or requires allocation to groups or clusters of CGUs, subject to the limits noted above.

Changes in the allocation of goodwill

For various reasons, the initial allocation of goodwill to CGUs or groups of CGUs may change. Below we discuss these circumstances and outline the appropriate accounting for each in accordance with IAS 36.

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.

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…

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Unused (Idle) Assets

Identification of CGU on A Country-By-Country Basis