Individual asset or cash-generating unit

Learning objectives

• Determine whether the recoverable amount is estimated for the individual asset or for its cash-generating unit, depending on whether its cash inflows are independent.L2, L3
• Explain the conditions for using the most recent detailed calculation for an intangible asset with an indefinite useful life.L3

Normative references

• IAS 36 §22Recoverable amount is determined asset by asset, unless the asset does not generate cash inflows largely independent of those from other assets or groups of assets; it is then determined for the CGU to which the asset belongs, unless (a) the asset's fair value less costs of disposal is higher than its carrying amount, or (b) the asset's value in use can be estimated to be close to its fair value less costs of disposal and that fair value can be measured.
• IAS 36 §24Permits, for an intangible asset with an indefinite useful life, the most recent detailed calculation of recoverable amount made in a preceding period to be used if three cumulative conditions are met: the composition of the CGU has not changed significantly when the asset is tested within a CGU, the most recent calculation showed a substantial margin, and the likelihood that the current recoverable amount would be less than the carrying amount is remote.

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

12 questions

• At what level should the recoverable amount be determined in principle?L2
• In Castelbon's plant, a conveyor links the cutting machine to the packaging line. It generates no cash inflows separate from those of the production line. Its fair value less costs of disposal, limited to a scrap value, is below its carrying amount, and the entity continues to use it fully. An indication of impairment affects the line. At what level should the recoverable amount be estimated?L2
• A crane truck owned by Fontrieu is used on a construction site and does not generate largely independent cash inflows. Its fair value less costs of disposal, observed on the second-hand market, is 310,000, against a carrying amount of 260,000. What can the entity conclude?L2
• Rivesalte has decided to take a packaging line out of service and to sell it in two months; until then, the cash flows expected from its use are negligible. The line does not generate largely independent cash inflows and its fair value less costs of disposal, which can be measured, is below its carrying amount. At what level should its recoverable amount be determined?L3
• In which of the following situations must the recoverable amount be estimated at the CGU level rather than for the individual asset?L2
• Alcyon holds a brand with an indefinite useful life, tested within a CGU. It wishes to reuse for 20X2 the detailed calculation of recoverable amount made in 20X1. Which conditions must be met?L3
• In addition to its main furniture manufacturing business, Hautbois operates a public pay car park next to its head office. The car park collects its own hourly takings, unrelated to furniture sales. An indication of impairment affects the car park. At what level should its recoverable amount be estimated?L2
• Mérens holds a beverage brand with an indefinite useful life, tested within the Beverages CGU. The 20X0 detailed calculation showed a recoverable amount 40% above the carrying amount of the CGU. In 20X1, Mérens adds to this CGU an acquired plant and two production lines, almost doubling its assets; no other adverse event is identified. Can it reuse the 20X0 calculation for the 20X1 test?L3
• Sorgue holds an operating licence with an indefinite useful life, tested on its own because it generates its own cash flows. The detailed calculation made in 20X1 showed a recoverable amount of 9,000,000 against a carrying amount of 5,000,000. In 20X2, no event affects the licence and management considers it very unlikely, in view of the circumstances, that its recoverable amount has fallen below its carrying amount. What can Sorgue do for the 20X2 test?L3
• Tavel holds broadcasting rights with an indefinite useful life, tested within the Media CGU, whose composition has not changed since 20X0. The 20X0 detailed calculation gave a recoverable amount of 10,300,000 against a carrying amount of 10,000,000. Management wishes to reuse this calculation for 20X1 to save the cost of a valuation. Is this possible?L3
• Coursan operates a quarry and the private railway line linking it to the national network. The line could only be sold for its scrap value, which is below its carrying amount, and it does not generate cash inflows independent of those of the quarry, which continues to use it fully. After a flood damaged the line, the accountant proposes to estimate the recoverable amount of the line alone, equal to its scrap value. What is the right approach?L3
• In which of the following cases may the recoverable amount be determined for the individual asset, rather than for its CGU?L3