ACX2100 Chap.4 Cash-Generating Units, Goodwill and Impairment Reversals
Cash-Generating Units, Goodwill and Impairment Reversals
A cash-generating unit is the lowest defensible asset grouping whose external cash inflows can be distinguished from the rest of the entity. Identification follows external receipts, management monitoring and consistent boundaries, not whichever grouping avoids an impairment. Compare CGU carrying amount, including allocated goodwill where relevant, with recoverable amount.
Allocate any loss to goodwill first, then pro rata to other eligible assets based on carrying amounts. No asset may be reduced below the highest of its own fair value less costs of disposal, its own value in use if determinable, and zero. A blocked share is not discarded; it is reallocated across the remaining eligible assets until the full CGU loss is recognised. Future depreciation uses reduced asset amounts.
A later reversal is capped at the carrying amount that would have existed without the original impairment after normal depreciation. Goodwill impairment is never reversed. The unit’s A Ltd sequence is retained as a verified numeric benchmark, while the model solution uses a fresh CGU because the extracted textbook reversal table is both interleaved and not suitable for reproduction.
What this chapter covers
- 01
Why independent cash inflows determine the test level
- 02
Smallest defensible CGU boundary
- 03
Including allocated goodwill in carrying amount
- 04
Goodwill-first loss allocation
- 05
Pro-rata allocation to eligible assets
- 06
Individual-asset floor and redistribution
- 07
Balanced CGU journal
- 08
Future depreciation after allocation
- 09
Reversal evidence and absent-impairment ceiling
- 10
Never reversing goodwill
AskSia-authored practice — allocate a CGU loss through a floor
- LossTotal carrying amount is $570,000, so the CGU impairment loss is $80,000.
- GoodwillWrite goodwill down first by $30,000, leaving $50,000 to allocate across land, plant and equipment.
- Pro rataFirst-pass shares on carrying amounts $180,000:$240,000:$120,000 are $16,666.67, $22,222.22 and $11,111.11.
- FloorLand can fall only $10,000 to its $170,000 floor. Reallocate blocked $6,666.67 to plant and equipment in their 2:1 ratio: $4,444.45 and $2,222.22.
- ProofFinal losses: goodwill $30,000, land $10,000, plant $26,666.67, equipment $13,333.33. They total $80,000; closing amounts total $490,000.
Key terms
- Cash-generating unit
- Smallest group producing cash inflows largely independent of other assets or groups.
- Goodwill-first allocation
- A CGU impairment is applied to allocated goodwill before other assets are reduced pro rata.
- Individual-asset floor
- Highest of an asset's own FVLCD, own VIU if determinable, and zero.
- Absent-impairment ceiling
- Maximum carrying amount after reversal: the amount that would exist had no impairment been recognised.
- Reallocation
- Redistributing a blocked pro-rata loss across other eligible assets rather than deleting it.
Cash-Generating Units, Goodwill and Impairment Reversals FAQ
How do I identify a CGU?
Use the smallest group with external cash inflows largely independent of other assets. Management monitoring and consistency support the boundary.
Which asset absorbs the loss first?
Allocated goodwill is reduced first. Any remaining loss is allocated pro rata to eligible assets, subject to floors.
What happens when an asset reaches its floor?
Cap that asset’s reduction and reallocate the blocked amount to remaining eligible assets. The CGU loss must still be recognised in full.
Can goodwill impairment be reversed?
No. A previously recognised goodwill impairment is never reversed in a later period.
Exam move
Draw the CGU boundary before calculating. Use a table with opening carrying amount, first-pass allocation, floor, blocked amount, second pass and closing amount. For reversals add current amount, absent-impairment ceiling and maximum increase. Practise one scenario where no floor binds and one where multiple passes are needed.
The taught A Ltd benchmark is $1,780,000 carrying amount, $1,660,000 recoverable amount and $120,000 loss, with land’s floor forcing a $7,000 redistribution. Use it as a check, not as a table to memorise. Rebuild every journal from your own allocation totals. Separate boundary judgment from allocation arithmetic.
On a fresh scenario, circle the external cash inflows and explain why every asset inside the proposed CGU depends on them. Only then calculate the shortfall. Keep goodwill on its own first line, and retain every capped first-pass amount rather than overwriting it during redistribution.
For reversal practice, write the no-impairment counterfactual before looking at recoverable amount; this prevents recoverable amount from being mistaken for the permitted closing balance. End each solution with two proofs: reductions or increases equal the recognised loss or reversal, and closing carrying amount agrees with the relevant recovery ceiling. Finally, state aloud why goodwill is treated differently on reversal.
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