Impairment of Cash Generating Units in Corporate Accounting

CORPORATE ACCOUNTING

ANSWER:
The process of impairment refers to the identification of assets whose cost value is recorded
more than the amount that can be recovered from them. Therefore this process is mainly a re-
recording of the fair value of the assets of an organization so that a proper set of data can be
evaluated. The calculation of the impairment loss can be done by determining the recoverable
amount of the asset that was part of the cash generating unit. If there is any such case in
which the individual loss on impairment of an asset cannot be determined then the
recoverable amount of the whole cash-generating unit is needed to be evaluated. The value of
the said that can be recovered will not be calculated if all the cash flows of that particular
asset are dependent on the use of other assets. Therefore, for finding impairment losses in
such cases, assessment of the cash generating unit as a whole should be evaluated. (Atkinson,
2012)
The smallest group of assets of the entity that helps to generate cash flows in an organization
is the cash generating unit. The external party receives these kinds of cash flows which are
generated by the smaller units. Also, in order to find the relation between the assets about
their dependence on each other, there are many facts that should be considered like
monitoring the use and decision of management with respect to the usage and disposal of the
organization's assets. (Girard, 2014)
If it is observed that the prevailing market is having a huge demand for the goods that are
being produced by these assets, then these assets are collectively named as cash generating
units. Even if all the goods are manufactured and consumed by the organization itself, then
also they will be considered as a cash-generating unit for the organization.
It should be noted that the assets should form a cash-generating unit that should be reported
from time to time until there are no changes required to be made because of certain
circumstances (McLaney & Adril, 2016). In some cases, when it is required by the
organization to transfer an asset from one of the cash generating units to another, then it is
very important that the firm should disclose this transfer in their reports. The organization
needs to look after any type of losses or impairment charges that have been incurred and then
report it so that no other circumstances can further affect the accounts of the organization.
For the evaluation of the impairment losses of the cash generating unit, it is important that we
ascertain the amount which can be recovered from that particular unit. The recoverable