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can be reasonably allocated.
3. This group of cash-generating units should then be tested for impairment.
Facts
CASE STUDY 11
An entity has two cash-generating units, X and Y. There is no goodwill within the units’ carrying values. The carrying values are X $10 million and Y $15
million. The entity has an office building that has not been included in the above values and can be allocated to the units on the basis of their carrying
values. The office building has a carrying value of $5 million.
The recoverable amounts are based on value-in-use of $9 million for X and $19 million for Y.
Required
Determine whether the carrying values of X and Y are impaired.
Solution
The impairment loss will be allocated on the basis of 2/12 against the building ($0.5 million) and 10/12 against the other assets ($2.5 million).
ALLOCATION OF IMPAIRMENT LOSS
Any impairment loss calculated for a cash-generating unit should be allocated to reduce the carrying amount of the asset in this order:
1. The carrying amount of goodwill should be first reduced, then the carrying amount of other assets of the unit should be reduced on a pro rata basis determined
by the relative carrying value of each asset.
2. Any reductions in the carrying amount of the individual assets should be treated as impairment losses. The carrying amount of any individual asset should not
be reduced below the highest of its fair value less cost to sell, its value-in-use, and zero.
If this rule is applied, the impairment loss not allocated to the individual asset will be allocated on a pro rata basis to the other assets of the group.
Facts
A cash-generating unit has these net assets:
The recoverable amount has been determined as $45 million.
Required
CASE STUDY 12
$m
Goodwill 10
Property 20
Plant and equipment 30
60