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Cash-generating units and goodwill
65. Paragraphs 66-108 set out the requirements for identifying
the cash-generating unit to which an asset belongs and
determining the carrying amount of, and recognising
impairment losses for, cash-generating units and goodwill.
Identifying the cash-generating
unit to which an asset belongs
66. If there is any indication that an asset may be impaired,
recoverable amount shall be estimated for the individual
asset. If it is not possible to estimate the recoverable
amount of the individual asset, an entity shall determine
the recoverable amount of the cash-generating unit to which
the asset belongs (the asset’s cash-generating unit).
67. The recoverable amount of an individual asset cannot be
determined if:
(a) the asset’s value in
use cannot be estimated to be close to its fair value
less costs to sell (for example, when the future cash
flows from continuing use of the asset cannot be
estimated to be negligible); and
(b) the asset does not
generate cash inflows that are largely independent of
those from other assets. In such cases, value in use
and, therefore, recoverable amount, can be determined
only for the asset’s cash-generating
unit.
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Example:
A mining entity
owns a private railway to support its mining activities.
The private railway could be sold only for scrap value
and it does not generate cash inflows that are largely
independent of the cash inflows from the other assets of
the mine.
It is not
possible to estimate the recoverable amount of the
private railway because its value in use cannot be
determined and is probably different from scrap value.
Therefore, the entity estimates the recoverable amount
of the cash-generating unit to which the private railway
belongs, ie the mine as a whole. |
68. As defined in
paragraph 6, an asset’s cash-generating unit is the smallest
group of assets that includes the asset and
generates cash inflows that are largely
independent of the cash inflows from other assets or groups
of assets. Identification of an
asset’s cash-generating unit involves judgement. If
recoverable amount cannot be determined for an individual
asset, an entity identifies the lowest
aggregation of assets that generate largely independent cash
inflows.
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Example:
A bus company
provides services under contract with a municipality
that requires minimum service on each of five separate
routes. Assets devoted to each route and
the cash flows from each route can be identified
separately. One of the
routes operates at a significant loss.
Because the entity
does not have the option to curtail any one bus route,
the lowest level of identifiable cash inflows that are
largely
independent of the cash inflows from other assets or
groups of assets is the cash inflows generated by the
five routes together. The
cash-generating unit for each route is the
bus company as a whole. |
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