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Muhanga Ltd. operates with a significant network of retail branches.In the financial statements for future years,Muhanga 2Ltd proposes to change the determination of cash generating unit (CGU) for impairment testing purposes at the level of each product line, rather than at each individualI branch. In the proposal, the determinationr of the CGUs will now be based the fact that each of the individual branches of Muhanga Ltd does not operate on a standalone basis as some income such as avolume rebates and costs are dependent on the nature of the product line rather than on individual branches. Muhanga Ltd considers that cash inflows and outflows for individual branches do not provide an accurate assessment of actual cash generated by those branches. However, Muhanga Ltd has daily sales information and monthly statements of profit or loss produced for each individual branch and this information is used to make decisions about continuing to operate individual branches. Required: With justification, advise Muhanga Ltd whether the proposed change to the to the accounting practice relating to the treatment of CGUs is acceptable under IFRS
Muhanga Ltd. operates with a significant network of retail branches.In the financial statements for future years,Muhanga 2Ltd proposes to change the determination of cash generating unit (CGU) for impairment testing purposes at the level of each product line, rather than at each individualI branch. In the proposal, the determinationr of the CGUs will now be based the fact that each of the individual branches of Muhanga Ltd does not operate on a standalone basis as some income such as avolume rebates and costs are dependent on the nature of the product line rather than on individual branches. Muhanga Ltd considers that cash inflows and outflows for individual branches do not provide an accurate assessment of actual cash generated by those branches. However, Muhanga Ltd has daily sales information and monthly statements of profit or loss produced for each individual branch and this information is used to make decisions about continuing to operate individual branches. Required: With justification, advise Muhanga Ltd whether the proposed change to the to the accounting practice relating to the treatment of CGUs is acceptable under IFRS
Consider whether business model has changed. If it hasn’t then you are losing comparability.
You are looking for the smallest units that generate cash flows independent of the other units.
So perhaps the old policy was not the most appropriate.
If you consider this to be the case and it constitutes a material error in prior years, consider need for prior period adjustment.
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