1542 Impairment loss for a cash generating unit excluding goodwill An

1542 impairment loss for a cash generating unit

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15.4.2 Impairment loss for a cash-generating unit — excluding goodwill An impairment loss occurs when the carrying amount of the assets of a cash-generating unit exceeds their recoverable amount. In determining the carrying amount of the assets, all those assets that are directly attributable to the cash-generating unit and that contribute to generating the cash flows used in measuring recoverable amount must be included. There must be consistency between what is being measured for recoverable amount — namely cash flows relating to a group of assets — and the measurement of the carrying amount of those assets. The principles for determining the recoverable amount of a cash-generating unit are the same as those previously described for an individual asset. However, the carrying amount of a cash-generating unit does not include the carrying amount of any recognised liability. If an impairment loss is recognised in a cash-generating unit the impairment loss should be allocated to reduce the carrying amount of the assets of the unit by allocating the impairment loss pro rata based on the carrying amount of each asset in the unit. The reduction in each carrying amount relates to each specific asset, and should be treated as an impairment of each asset, even though the impairment loss was based on an analysis of a cash-generating unit. IAS 36 places some restrictions on an entity's ability to write down assets as a result of the allocation of the impairment loss across the carrying amounts of the assets of the cash-generating unit. For each asset, the carrying amount should not be reduced below the highest of: a. its fair value less costs of disposal (if measurable); b. its value in use (if determinable); and c. zero.
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Corporate assets . One problem that arises when dividing an entity into separate cash-generating units is dealing with corporate assets. Corporate assets = the headquarters building or the information technology support centre, are integral to all cash-generating units generating cash flows but do not by themselves independently generate cash flows. How corporate assets should be dealt with in determining impairment losses for an entity: Step 1: If any corporate assets can be allocated on a reasonable and consistent basis to cash- generating units, then this should be done. Each unit is then, where appropriate, tested for an impairment loss. Where a loss occurs in a cash-generating unit, the loss is allocated pro rata across the assets including the portion of the corporate asset allocated to the unit. Step 2: If some corporate assets cannot be allocated across the cash-generating units, the entity: - compares the carrying amount of each unit being tested (excluding the unallocated corporate asset) with its recoverable amount and recognises any impairment loss by allocating the loss across the assets of the unit; - Identifies the smallest cash-generating unit that includes the unit under review and to which
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