Impairment loss for Cash Generating Unit Excluding Goodwill

This article discusses impairment loss for cash generating unit excluding goodwill as per AASB 136. It explains the regulations and guidelines for identifying cash generating units and allocation of loss. The article also covers the indications for impairment and the process of approximating the recoverable amount of assets. The subject is corporate accounting and the university name is not mentioned.

Running head: CORPORATE ACCOUNTING
Corporate Accounting
University Name
Student Name
Authors’ Note

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Impairment loss for Cash Generating Unit Excluding Goodwill
As per the regulations stipulated under AASB 136 is referred to as impaired asset of the
concerned business concern in case if market price of that specific asset is lesser than the
documented value presented in the balance sheet announcement of the firm. In essence,
written down assets can be indicated as fixed asset and goodwill. This is because overall span
of time of the carrying worth is higher for the purpose of impairment. Nonetheless, at the
time when carrying amount of a specific asset is higher than the recoverable amount, then in
that case the asset is said to be impaired. This is necessarily an accountability of corporation
to enumerate the recoverable amount in case if there subsists, any signal of impairment in the
asset (Schaltegger and Burritt 2017). For this purpose, a review needs to be carried out by the
business concern at the closing of each period and the recoverable amount of the specific
asset need to be approximated in case if indication of impairment subsists for the same.
In essence, the firm has the need to examine the intangible asset with indefinite economic life
or else intangible assets that are not available, up till now for impairment use, regardless of
presence of any signal concerning impairment (Tahat et al. 2017). The corporation can
perform impairment at any specified period of time in a financial year; provided that the
business concern undertakes the same constantly at that time every year. In a bid to examine
impairment of a specific asset, numerous indications can be appropriately utilized. The
external sources that can be considered are as mentioned herein below:
a) Market value of asset that has considerably declined more than approximated value
b) Rate of return or else interest rate of the specific market that had necessarily escalated
within a specific time period is anticipated to exert influence on the rate of discount. Also this
is used for the purpose of enumeration of the asset worth (Uyar 2016)

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c) Considerable alterations that have occurred are anticipated to exert negative insinuation for
the business concern
Again, the internal sources that signal indications are as presented below:
a) Substantiation of particularly obsolescence and different physical damage of assets that are
available (Agrawal and Cooper 2017)
b) Alterations having significant adverse impact on the corporation: The transformations that
adversely exert influence on the company, takes in plans regarding disposal of asset before
anticipated life, different idle assets, reformatting else wise discontinuation schemes for
functions counting the assets.
Recoverable amount of particularly assets is normally the higher one among the value in use
and the fair value deducting cost of disposal. Particularly, for generation of cash similar
notion can be implemented (Watson 2015). Value of asset in usage is also approximated by
means of the following:
- Probable time variations else wise flow of cash in the upcoming period are anticipated to
take place
- Approximation of upcoming flow of cash anticipated to be generated by the concerned
business concern
-Uncertainty costs that is present intrinsically in the assets
- Different exogenous facets such as liquidity in the market, participation in the market and
flow of cash in the upcoming period (Bond et al. 2016)
Fundamentally, flow of cash in the upcoming period necessarily takes in the following:
- Flows of cash that can be accepted/received for the purpose of disposal of assets

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- Cash inflow approximations for particularly the ones incurred for inflow of cash generation
from continuous utilization of assets and this can be attributed to definite asset on a reliable
basis.
According to paragraph (66 to 108), it can be hereby mentioned that there are different
guidelines and directives concerning identification necessities of cash generating unit
(Guthrie and Pang 2013). Particularly, this comprises of asset and carrying amount
ascertainment as well as recognition of impairment loss for the cash generating unit and the
amount of goodwill. Due to presence of impairment of the concerned asset, recoverable
amount of the individual asset has the need to be approximated by the business concern.
However, in case when approximation of particularly recoverable amount of the asset
becomes impracticable, then the business concern has the necessity to approximate
recoverable sum of cash generating unit. In essence, the smallest number of asset set,
engaging assets as well as generation of cash flow that is not reliant on inflow of stream of
cash from any other asset otherwise group of assets that is also indicated as cash generating
unit (Hull and White 2014). In essence, these units have the necessity to be identified on a
regular basis on a continuous basis for same or else similar kinds of assets in absence of any
justified alterations. The cash generating unit of particularly recoverable amount is the higher
one among the value in utilisation and the fair value deducting disposal cost. In essence, the
carrying cost of the cash generating unit is ascertained persistently in the similar way as that
of the way of ascertainment of the total amount for particularly the cash generating unit (Hull
and White 2014).
Whilst examining the cash generating unit else wise cash generating group (goodwill that is
allocated to the entire cluster) for purposes of impairment, overall loss that stems from the
impairment gets allocated goodwill’s carrying amount in the first place. Subsequent to
allocation of loss, the remaining loss gets distributed to diverse other assets/resources that are

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mainly existent under the cash generating unit (CGU), on particularly carrying amount of the
assets under the cash generating unit in pro rata base. Fundamentally, based on
approximation procedure, carrying amount of the asset is not reduced under recoverable
amount of the asset as well as zero (Watson 2015). In essence, procedure of allocation for
particularly loss stemming out of impairment remains the same for cash generating unit
cluster and a single CGU. Nonetheless, in different cases where it is not plausible to carry out
allocation of goodwill to a lone cash generating unit on a non-random basis, then impairment
is examined particularly at the lowest level for the specified corporation whose goodwill gets
recognized for internal management reason that might include the cluster of CGU.
Particularly, the specific level that is within the business concern is not supposed to be higher
than the operating section of the corporation as mentioned under the paragraph 5 of
particularly IFRS 8. This is concerning pre aggregation of operating segment. In case if
goodwill gets allocated to particularly cash generating unit, then in that case, it might show
the way to multiple requirements of particularly impairment test (Uyar 2016). In essence, this
might be exemplified as examining single cash generating unit for different individuals along
with group CGU, and goodwill gets assigned to the same. Therefore, for the current purpose
of allocation of loss of impairment to particularly cash generating unit, without counting the
goodwill, it has the need to be carried out based on pro-rata and carrying amount of the asset
also needs to be taken into consideration.

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References
Agrawal, A. and Cooper, T., 2017. Corporate governance consequences of accounting
scandals: Evidence from top management, CFO and auditor turnover. Quarterly Journal of
Finance, 7(01), p.1650014.
Bond, D., Govendir, B. and Wells, P., 2016. An evaluation of asset impairments by
Australian firms and whether they were impacted by AASB 136. Accounting &
Finance, 56(1), pp.259-288.
Guthrie, J. and Pang, T.T., 2013. Disclosure of Goodwill Impairment under AASB 136 from
2005–2010. Australian Accounting Review, 23(3), pp.216-231.
Hull, J. and White, A., 2014. Valuing derivatives: Funding value adjustments and fair
value. Financial Analysts Journal, 70(3), pp.46-56.
Schaltegger, S. and Burritt, R., 2017. Contemporary environmental accounting: issues,
concepts and practice. Routledge.
Tahat, Y., Omran, M. and Dunne, T., 2017. Development of Accounting Regulations and
Practices in Kuwait: An Analytical Review. Journal of Corporate Accounting &
Finance, 28(6), pp.14-28.
Uyar, A., 2016. Evolution of corporate reporting and emerging trends. Journal of Corporate
Accounting & Finance, 27(4), pp.27-30.
Watson, L., 2015. Corporate social responsibility research in accounting. Journal of
Accounting Literature, 34, pp.1-16.

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