Impairment Loss for Cash Generating Unit Excluding Goodwill

Running head: CORPORATE ACCOUNTING
Corporate accounting
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2CORPORATE ACCOUNTING
Part A
Impairment loss for cash generating unit excluding goodwill
The main objective of the standard that is AASB 136 on Impairment of the
assets depicts that the assets in the financial statement of the company shall not be
carried out at the amount which is greater than its recoverable amount. Any asset is
recorded at greater than its recoverable amount while the carrying amount of the
asset is more than recoverable amount through the sale or use of the asset
(Corgnati et al. 2013). In this case the asset will be regarded as impaired and it will
require the company to identify the amount of impairment loss. AASB 136 also states
the scenario under which the impairment loss reversal shall be carried out and
disclosed. However the standard is not applicable to inventories, deferred tax assets,
assets generated from the construction contracts, assets generated from the
employee benefits or the assets identified as held for the purpose of sale. The
reason is that the standard is applicable to the mentioned assets that contain the
requirement for measuring and recognising the assets (Robinson and Sensoy 2016).
The standard is applicable to the assets those are carried at the revalued amount
that is the fair value at the revaluation date reduced by the amount of depreciation
and impairment, if any (Aasb.gov.au 2018).
For the accounting standard the term carrying amount is defined as the
amount for which the asset is recorded after subtracting the accumulated
depreciation and accumulated impairment losses, if any. Further, the term cash
generating unit (CGU) is defined as the smallest group for identifiable asset that
create cash inflows. The cash inflows here are widely independent of cash flows
generated from various other assets or the group of asset. Cost of disposal is the

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incremental cost that is directly attributable to disposal of the asset or the CGU while
the income tax expenses and finance costs are not taken into consideration.
Recoverable amount of the assets or CGU is value and use and fair value reduced
by cost of disposal, whichever is higher. Finally the impairment loss is the amount of
loss by which the asset’s carrying amount or the CGU exceeds the recoverable
amount (Bond, Govendir and Wells 2016).
The entity shall assess the asset at the end of every reporting period to check
whether any signal is there for the impairment. If the signal for impairment exists the
entity shall immediately estimate the asset’s recoverable amount. However,
irrespective of the signal the company shall assess the intangible asset for
impairment that has recognisable useful asset and not yet available for the use
through comparing the carrying amount with the recoverable amount. The
impairment test shall be performed at any of the time during the year however; it
shall be carried on same time for each year. Various intangible assets shall be tested
for impairment at various times. However, the test shall be carried out before the
current annual period end (Accounting, Part and Plans 2015). The ability of the
intangible asset to create adequate economic benefits for recovering the carrying
amount is subject to the greater uncertainty when the asset is not available for use
as compared to the time when the asset is available for the use. Therefore, the
company shall test the impairment at least annually for computing the carrying
amount of the asset that is not yet available for use. While assessing the impairment
indication for any asset the company shall takes into consideration the specific
external sources as well as internal sources of information. The external sources are
– (i) the market value of the asset during the period has been significantly reduced
more than expectation owing to normal use (ii) considerable changes has been

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taken place or will take place in future period with adverse impact on the company
during the period. The changes can be in the market, legal, technological or
economic environment under which the company operates or the market to which
the asset is contributed (iii) interest rate in the market or any other return rate of
market on the investment during the period increased. Further, the increases are
expected to have an impact on the rate of discount that is used for computing the
worth of the asset in use and the recoverable amount of asset is decreased
materially (iv) carrying amount of the company’s net asset is more as compared to
the market capitalization. On the other hand, the internal sources of indication are –
(i) it is evidential that asset is obsolete or physically damaged (ii) considerable
changes has been taken place or will take place in future period with adverse impact
on the company during the period. The change includes the plans of reorganization
or discontinuation of the operation; asset is idle, plans for disposing-off the asset
before the date of expectation. It further includes the reassessment of the asset’s
useful life as definite as against indefinite (iii) it is evidential from internal sources
that the economic performance of the asset is worse as compared to expectation.
Paragraph 66 – 108 stated the requirements to identify the CGU to which the
asset is included and determines the carrying value and identify the amount of
impairment loss for the CGU. If signal is there that the asset can be impaired then
the recoverable amount must be projected for the individual asset. If determination of
recoverable amount for individual asset is not possible the company must determine
the CGU’s recoverable amount under which the asset is included (Abbott and Tan‐
Kantor 2017). Further, the individual asset’s recoverable amount is not possible to
determine if any cash inflows cannot be generated from the asset that is widely
independent from the other assets. Individual asset’s recoverable amount is also not