Impairment of cash generating units

ABC Ltd is in the business of manufacturing medicine and pharmaceuticals. It
has three cash-generating units (CGU): A, B, and C. Due to the slowdown in the
pharmaceutical industry, ABC conducts impairment tests of each of its CGU.

The research and development are conducted from a common laboratory at the
headquarters. The carrying amount of the laboratory is $4.5 million. The annual
sales volume of the CGUs is a reasonable indication of the proportion of the
laboratory devoted to each CGU. The brand name has a carrying amount of $1.5
million and could not be allocated on a reasonable and consistent basis to the
respective CGUs.

The recoverable amount of ABC Ltd’s business is $19 million.

The following information is relevant:

CGU Annual sales volume Carrying amount Recoverable amount
(million units) ($’000) ($’000)

A 15 4,520 6,000
B 25 6,680 7,600
C 20 5,460 5,200

There is no goodwill and the carrying amount of the three CGUs includes plant,
equipment, and patents.

Perform the impairment test for ABC Ltd, stating the allocation of any
impairment loss and total impairment loss recognised for the financial year.
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