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Chapter 4

Cash Generating Units (CGUs)

3.1 Definition

A Cash Generating Unit is the smallest identifiable group of assets for
which independent cashflows are identifiable.

For example, within a college, independent cashflows are not
identifiable for each piece of furniture, or maybe even all the furniture
within each classroom, and it is necessary to combine all the assets at
a particular location to identify the independent cashflows.

3.2 Impairment calculation

The assets in the CGU are grouped together and their combined value is compared
to the total recoverable amount. Impairment exists where the total carrying amount is
greater than the total recoverable amount.

3.3 Allocation of impairment

The calculated total impairment needs to be allocated against specific assets.

Having impaired any specifically impaired items, assets should be impaired in the
following order:

1 Purchased goodwill

2 Remaining assets pro-rata based on their carrying amount

Note that no asset is to be written down below its recoverable amount.

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