i need help on explanation of cash generating unit. anyone to help? thanks
Dears:- what i saw interesting is, definitions based on dry words are not helping us to understand how our lessons are compatible with the real world:-.....like here impairment of assets.
It is just like reducing the value of the asset to how much we can receive if we sell it or use it over it is useful life........very simple, it is just like that,,,,,it has the idea that you can not measure/give value to something more than what they worth now....... therefore to reduce the asset value to its recoverable amount(how much it worth it now) you must know how much cash does that asset generates.....for example, PPE with carrying value of USD 500, and the recoverable amount of USD400, so you know how much it is worth, then reduce the NBV of asset to 400.....
NB:- each asset's cash inflow should be measured separately from any other group of assets.
Life is not always easy!!!! what about if you don't know how much cash will be generatable by the asset - (either it in many group of assets and you can not figure out how much cash does that particular asset will generate) and you mark it for impairment, than cash generating unit should be used, meaning the group of assets that this assets belongs whose cash inflow can be separately identifiable should be looked at and recoverable amount of these group of assets should be taken to calculate the impairment:-
**NB:- Impairment = recoverable amount less carry value of asset; then the result will be set against, 1- against goodwill, any destroyed asset, and then to the rest of the assets on the basis of their value.
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. When the recoverable amount of an individual asset cannot be determined, its CGU should be identified as the lowest aggregation of assets that generates independent cash inflows.