Procedure and Calculation of Impairment Loss of Cash Generating Unit with Goodwill

31 January 2019

The procedure and the calculation of the impairment loss of the cash generating unit
including the goodwill are set out in the “Accounting Standard AASB 136, Impairment
of Assets.” The accounting standard is applicable for the reporting periods on or after
1 July 2007 (AASB, 2015).
As per the said accounting standard, the impairment loss in relation to a cash
generating unit is referred to as the excess of the carrying amount of a cash
generating unit over its recoverable amount (Kabir, Rahman and Su, 2017). The
accounting standard further defines the recoverable amount to be the higher of the
following, which is firstly, the sum obtained fair value after the deduction of costs if
any, secondly, the value in the use of the cash generating unit. The carrying amount
refers to the amount of the recognition of the assets that is obtained after the
deduction of the amortisation amount. These refer to the amount of the accumulated
impairment losses or the accumulated depreciation thereon.
The cash generating unit refers to the smallest group of the assets that are capable
of being identified and can generate the cash inflows. The significant characteristic of
the cash generating unit is that the inflows of such CGU are independent of the other
assets or such group of assets. The carrying amount of the cash generating units
include only those assets that are capable of being attributable directly, and must be
allocated on a reasonable and a consistent manner. It must be noted that while
computing the carrying amount, the calculation should not include the carrying
amount of a recognised liability. This can be however be allowed in the case when
the recoverable amount cannot be determined without the consideration of the said
liability.
As per the paragraph 81 of the AASB 136, it must be noted that the goodwill is the
representation of an amount that is paid y the acquirer in the anticipation of the
future economic benefits. The said amount cannot be capable of identification
individually or separately and hence, the payment is made along with the assets
itself at the time of acquisition. It is also significant to note that independent cash
flows are not generated by the goodwill, but the goodwill is contributory to the cash
flow generation of the multiple cash-generating units, containing of the group of
assets.