Carrying amount of a cash-generating unit

Learning objectives

• Determine the carrying amount of a unit consistently with its recoverable amount: attributable assets included, recognised liabilities excluded unless an exception applies.L2, L3
• Calculate the carrying amount and the recoverable amount of a unit when a liability (restoration) must be taken into account by the buyer.L3

Normative references

• IAS 36 §74The recoverable amount of a CGU is the higher of its fair value less costs of disposal and its value in use; to determine it, the requirements of paragraphs 19 to 57 relating to "an asset" are read as referring to the CGU.
• IAS 36 §75The carrying amount of the CGU is determined on a basis consistent with the way its recoverable amount is determined.
• IAS 36 §76The carrying amount of the CGU includes the assets that can be attributed directly, or allocated on a reasonable and consistent basis, and that generate the cash flows used, and excludes recognised liabilities unless the recoverable amount cannot be determined without taking them into account.
• IAS 36 §77When assets are grouped, the CGU must include all the assets that generate or are used to generate the cash flows used; otherwise it might appear fully recoverable when an impairment loss has in fact occurred. Some contributing assets (goodwill, corporate assets) cannot, however, be allocated on a reasonable basis, hence paragraphs 80 to 103.
• IAS 36 §78When the disposal of a CGU would require the buyer to assume a recognised liability (for example, a restoration obligation), its fair value less costs of disposal relates to the assets and the liability together; for a meaningful comparison, the carrying amount of the liability is deducted both from the carrying amount of the CGU and from its value in use.
• IAS 36 §79For practical reasons, the recoverable amount may be determined after taking into account assets outside the CGU (receivables, financial assets) or recognised liabilities; the carrying amount is then adjusted accordingly.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

15 questions

• Ferrandes operates a quarry that forms a cash-generating unit (CGU). The carrying amount of the CGU's assets is 1,000,000. A provision for site restoration is recognised at 400,000; any buyer of the quarry would have to assume this obligation. A firm offer covers the assets and the obligation together: the fair value less costs of disposal of this package is 520,000. The value in use of the assets, before taking the restoration obligation into account, is 560,000. What is the impairment loss of the CGU?L3
• Ferrolia is testing the Rolling Mill CGU. The cash flows used for its recoverable amount come from rolling machines ({machinery}), the workshop building ({building}) and a process patent used by the workshop ({patent}). The workshop's trade payables amount to {trade_payables}; the recoverable amount was determined without considering them. A vehicle used exclusively by another unit ({other_unit_vehicle}) is recorded in the site's accounts. What is the carrying amount of the Rolling Mill CGU to be compared with its recoverable amount?L2
• The Calanque hotel, operated by Azurhotels, forms a CGU. Its value in use is based on the revenue generated by the hotel building ({hotel_building}), the room furniture ({furniture}) and dedicated booking software ({booking_software}). The hotel has debts to its suppliers ({supplier_debts}) and a bank loan that financed the works ({bank_loan}); none of these debts is needed to determine the recoverable amount. Calculate the carrying amount of the CGU.L2
• The Pierrelune quarry forms a CGU. Its assets have a carrying amount of {assets_carrying_amount}, and a provision for site restoration is recognised for {restoration_provision}. Any buyer of the quarry would have to assume this obligation: the fair value less costs of disposal of the whole, obligation included, is estimated at {fvlcd_with_liability}. Value in use, calculated without considering restoration outflows, is {viu_before_restoration}. Determine the carrying amount to be compared, the recoverable amount and the impairment loss.L3
• Nordmaris operates an offshore gas platform, which is a CGU whose assets have a carrying amount of {platform_assets}. It has recognised a decommissioning provision of {decommissioning_provision}, an obligation that a buyer of the platform would have to assume. The price a buyer would pay for the platform and this obligation, less costs of disposal, is estimated at {fvlcd_buyer_assumes}. Value in use projections, prepared excluding decommissioning outflows, give {viu_excluding_decommissioning}. What are the carrying amount to be used for the test, the recoverable amount and any impairment loss?L3
• The private operator Ecodepots runs a waste landfill site, which is a CGU. The carrying amount of the facilities is {landfill_assets}. A provision for closure and rehabilitation of the site is recognised for {site_closure_provision}; a sale of the site would transfer this obligation to the purchaser. A purchaser would pay, for the site and the obligation, a fair value less costs of disposal of {fvlcd_including_obligation}. Value in use calculated before any closure outflows amounts to {viu_gross}. Calculate the carrying amount to be compared, the recoverable amount and the impairment loss.L3
• For practical reasons, Distrimax determined the recoverable amount of its West Warehouse CGU by including the warehouse's trade receivables ({trade_receivables}) and trade payables ({trade_payables}). The recoverable amount thus obtained is {ra_incl_working_capital}. The CGU's assets, excluding receivables, have a carrying amount of {cgu_assets}. Determine the adjusted carrying amount of the CGU and the impairment loss.L3
• The Verdalia garden centre chain is testing its Montclair store, which is a CGU. For simplicity, the finance department calculated the store's recoverable amount, {recoverable_amount_computed}, by including trade customer accounts ({customer_receivables}) and debts owed to nurseries ({supplier_payables}). The store's other assets have a carrying amount of {store_assets}. What is the adjusted carrying amount of the store, and what impairment loss must be recognised?L3
• How is the recoverable amount of a cash-generating unit determined?L2
• How are recognised liabilities treated in the carrying amount of a CGU?L2
• Panetis is testing its Industrial Bakery CGU, whose recoverable amount was estimated from the production line's operating cash flows only, without considering financing. Which items are included in the carrying amount of the CGU? (several answers)L2
• Why does IAS 36 require a CGU to include all the assets that generate, or are used to generate, the cash flows used for its recoverable amount?L3
• The disposal of a CGU would require the buyer to assume a recognised restoration obligation. Which statements are correct? (several answers)L3
• The kaolin mine of Kaolys forms a CGU. Its assets have a carrying amount of 3,000,000; a restoration provision of 700,000 is recognised, and any buyer would have to assume it. The mine's fair value less costs of disposal, obligation included, is 2,500,000; value in use excluding restoration outflows is 2,600,000. The controller compares 2,500,000 with 3,000,000 and proposes an impairment loss of 500,000. Which conclusion is correct?L3
• The value in use projections of Agrifrais's Packaging CGU include the output of a labelling machine used exclusively by that unit. However, the labelling machine is recorded in the head office's accounts, and the controller left it out of the carrying amount of the CGU. What should be done?L2