Impairment Loss in Cash Generating Units Excluding Goodwill

This article discusses the computation of impairment loss in cash generating units excluding goodwill. It explains the purpose and objective of impairment testing, allocation of goodwill, and allocation of impairment loss. It also includes a computation of impairment loss for Gali Ltd.

IMPAIRMENT LOSSS
[Type the company name]

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Part A
Introduction
According to the accounting standard, the tangible and intangible assets of the company
should be mentioned at the realisable value in the financial statement. It is noted that the
value more than its realisable value is not mentioned in the financial statement because it
arises the risk for the company. If the value of the asset is stated more than its realisable value
in the financial statement of the company than impairment is needed in order to bring the
value equal to the realisable value of the asset (Accounting Tools, 2018). The tangible and
intangible assets are recorded at their realisable value but the values of these assets are
revaluated time to time as per the market conditions. As per the accounting principle, the
company has to revalue the cost of tangible and intangible asset but the result of these
revaluations should not be overvalued in the figures in the financial statement. The
calculation of impairment loss is easy in the case of the individual asset as per the ASAB 136
but computation of impairment is difficult in the terms of cash generating unit. In this essay
the discussion is made on the topic of impairment loss for cash generating units excluding
Goodwill (Accounting Tools, 2018b).
Purpose and objective of Impairment test
The main objective of the computation of impairment loss is to make sure about the values of
assets. According to the accounting principle, it is necessary to revaluate the value of assets
in the books of accounts. It is observed that the revaluation of the asset either is upward or
downward. But if the revaluation of the asset is upward then the risk of overvaluation of asset
arises. It is necessary to revalue the amount of the asset because the value of the asset is
change time to time as per the market condition. For example- there may be significant
downfall in the market value of the assets then it is compulsory to revaluate the value of the

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asset. And if the value of the asset is not revalue time to time than the market value of the
asset is shown more than the realisation value in the balance sheet which arise the risk
(Readyratios, 2018).
As per the impairment testing, the carrying amount of the assets is analysed which is noted in
the balance sheet. It is noted that the carrying amount of the assets should be less than the
realisation value of the asset. The main purpose of this testing is to make sure about the value
of asset because if the overvalued circumstances exist, then the asset should be impaired to
bring them equal.
Impairment loss in the terms of Cash Generating Unit
In the case of individual, the assets are tested individual to evaluate the impairment loss as
per the ASSB 136 provision of accounting. But in the case of cash generating unit, the assets
are clubbed together for the testing as per the definition of cash generating unit. Cash
generating unit defines to the group of asset that generate the cash flow. In this case, the
impairment test is conducted on the group of assets instead of individual asset. The whole
group of asset is called the cash generating unit (CPA Australia, 2018).
The carrying amount is deducted from the recoverable amount of the asset in order to
calculate the impairment loss in the case of cash generating unit. The highest value of
recoverable amount or the value use in cash generating unit are taken in the calculation of
impairment loss (Ernst & Young LLP, 2015).
Allocation of Goodwill in the case of Cash Generating Unit
According to the ASSB 136, the value of impairment loss is allocated to the goodwill in the
testing of cash generating unit. Goodwill cannot generate the cash flow independently as per
the other assets; therefore, it is essential to impair the value of goodwill as well. It is essential

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that the cash generating unit is calculated by determining the benefit from the value of the
group of asset. In the case of allocation of impairment loss, the loss has been allocated first to
the goodwill and then to the other asset (ACCA Global, 2018).
Allocation of Impairment Loss
After allocating the impairment loss to the goodwill, the remaining amount of the loss is
allocated to the other assets as per the percentage of their carrying amount. It is necessary that
the allocated amount should not be more than the amount of impairment loss while the
impairment loss is calculated individually. The impairment loss is computed by deducting the
carrying amount from the recovery amount. The impairment loss is mentioned in the
statement of profit and loss account (Accounting Explained, 2018).
Conclusion
The above discussion represented the topic of impairment loss in the case of cash generating
unit. From the limelight discussion, it has been concluded that the computation of impairment
loss is necessary for the company in order to analyse the appropriate position of the asset of
the company. It is noted that the computation of impairment in the context of cash generating
unit loss is different from the impairment loss in the case of individual asset.

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Part B
Computation of the Impairment Loss of Gali Ltd
A. Carrying amount of cash generating unit including goodwill
Amount ($)
Plant * 2,13,700.00
Brand 49,000.00
Fittings 31,000.00
Goodwill 11,000.00
A. Total 3,04,700.00
B. Recoverable amount 2,84,700.00
C. Impairment Loss (A-B) 20,000.00
Account Titles Debit Credit
Impairment Loss
20,000.0
0
Goodwill
11,000.0
0
Plant (note below)(9000/(213000+49000+31000)*213000) 6,548.52
Brands (9000/(213000+49000+31000)*49000) 1,501.53
Fittings (9000/(213000+49000+31000)*31000) 949.95
Inventory
(Being impairment loss recognized)
Profit and Loss
20,000.0
0
Impairment Loss
20,000.0
0
(Being impairment loss charged to profit and loss account)
Impairment on plant individually
(213700- 205697)
8,003.00
Allocated impairment of CGU
6058.52
(9000/(213000+49000+31000)*213000)

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Notes
The impairment loss of the Plant is calculated individually from the other asset then the loss
will be
2137000-205697= 8003
The impairment loss of Plant is 8003 which states that the value of allocation of loss is not
more than the value impairment loss.

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References
ACCA Global. (2018) Impairment of goodwill and CGUs. [online] Available from:
https://www.accaglobal.com/in/en/member/discover/cpd-articles/corporate-reporting/
goodwill-cgus.html [Accessed 24/1/18].
Accounting Explained. (2018) Impairment of Fixed Assets. [online] Available from:
https://accountingexplained.com/financial/non-current-assets/impairment-of-assets [Accessed
24/1/18].
Accounting Tools. (2018b) Cash-Generating Unit. [online] Available from:
https://www.accountingtools.com/articles/2017/5/4/cash-generating-unit [Accessed 24/1/18].
Accountiong Tools. (2018a) Impairment loss. [online] Available from:
https://www.accountingtools.com/articles/2017/5/10/impairment-loss [Accessed 24/1/18].
CPA Australia. (2018) IAS 36 Impairment of Assets. [online] Available from:
https://www.cpaaustralia.com.au/~/media/corporate/allfiles/document/professional-
resources/reporting/reporting-ifrsfactsheet-impairment-of-assets.pdf?la=en [Accessed
24/1/18].
Ernst & Young LLP. (2015) International GAAP 2016: Generally Accepted Accounting
Principles under International Financial Reporting Standards. John Wiley & Sons.
Readyratios. (2018) International Financial Reporting Tool. [online] Available from:
https://www.readyratios.com/reference/accounting/impairment_of_assets.html [Accessed
24/1/18].