Impairment loss for cash generating units including goodwill

Running head: CORPORATE ACCOUNTING AND REPORTING
Corporate Accounting and Reporting
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CORPORATE ACCOUNTING AND REPORTING
Impairment loss for cash generating units including goodwill
Introduction:
The main principles relating to the impairment is that an asset is not allowed to be
carried into the financial report further than its recoverable value which is more than the
assets fair value less its cost of sales and its usable value (Chen, Shroff and Zhang 2017). The
carrying amount of the asset is then matched with the recoverable sum and then the asset is
tested for impairment when the carrying value goes pas the recoverable amount. Any kind of
impairment is later assigned to the asset and the loss from impairment is identified in profit or
loss.
Discussion:
Every asset is considered for impairment evaluation. For the purpose of impairment
testing where there is a sign that the asset might be tested for impairment even though some
assets such as the goodwill and indeterminate life intangible assets is tested for the purpose of
impairment yearly despite there is no sign of impairment.
The asset recoverable sum is computed based on the separate level asset.
Nevertheless, an asset produces cash flows individually from the new asset and majority of
the asset is tested for impairment under the group of assets which is described as the cash
generating units (Majid and Jamaliah 2019). The CGU is regarded as the smallest recognized
cluster of assets which produces inflow of cash which is mainly dependent on the inflow of
cash from the other group of assets.
A business is acquired by the business and it is allocated to the cash generating unit of
the acquirer that is anticipated to help the corporate combination. The highest level of cash
generating unit is allowed for impairment testing of goodwill which represents the lowermost
level of the operational section (Detzen et al. 2016). According to IAS 36, impairment of

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CORPORATE ACCOUNTING AND REPORTING
goodwill should be carried out at the certain level which is not bigger than the operating
segment as stated under the IFRS 8 of operating segments.
As per the IAS 36 to clear that the cash generating unit should not bigger than the
operating section prior to aggregation. Business entities must assure that the Cash Generating
Unit are allied with the operational sections (Devalle, Rizzato and Pisoni 2017). The
recoverable worth of the CGU is similar for the individual asset. The carrying worth of the
CGU comprises of the assets that are exclusively and directly attributable to the cash
generating unit and the allocation of the assets which is indirectly attributable based on
practical and consistent basis to the cash generating unit together with the business assets and
goodwill.
Where the goodwill has already been assigned to the CGU and a company disposes
the operation inside the CGU the goodwill that is attributed to the operative segments
disposal is included into the carrying value operational segment when computing the profit or
on sale. Similarly, a company may reorganize their business and alter their composition of
one or more CGU where the goodwill is assigned (Huikku, Mouritsen and Silvola 2017).
Under such circumstances the goodwill which is attributed to the operative segments is
moved between CGU and it is computed based on the fair value of the operating segment and
the remaining part of the CGU is shifted to the operations. Liabilities associated to the
financing of the CGU is not assigned to ascertain the carrying sum of the CGU as the
associated cash flow would be executed from the impairment computations.
An impairment costs that is computed for the cash generating unit must be assigned to
the CGU of the individual asset. At first the goodwill is distributed to the CGU and later the
remaining part of assets of the CGU based on the pro rate basis in respect of the carrying
value of every asset in the CGU (Filip, Jeanjean and Paugam 2015). While assigning the