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Hi! Not sure if this is the correct place to post but I am having trouble understanding what cash generating units are and how they can be identified? Could you kindly give me a few examples?
A cash generating unit is the smallest number of assets when added together will produce an economic outflow. For example, a train, a station, railway tracks and perhaps a bridge are all required to produce passenger income. I think you might find a more technical answer in IAS 36 Impairments.
Thanks! I think I got the gist of it. In class we were ask to think of some examples of how a cash-generating unit would be identified. Could you take a look if I got it right? If not could you tell me what I got wrong?
1. A bakery has the following assets; a dough mixer, a electric proofer and a woodfired oven. Each of these assets do not generate their own cash flows but plays an integral part in the production process and thus help generate the bakery’s cash flows. In this instance the cash generating unit would be the whole bakery.
2. Mr. X, owns a number of burger joints throughout the city as such they are located in different neighborhoods. Each is managed independently and generates its own cash flows. In this instance each burger joint should be treated as separate cash generating units.
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