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Hi sir,
Could you please help me with what is cash generating unit (would be much appreciate if you can explain by using examples) & corporate assets?
What does it mean “allocation of loss with unallocated corporate assets or goodwill”?
Thank you.
Consider a tuition firm like BPP. They have several divisions – accountancy, nursing etc. Each would be a CGU as each would generate an independent stream of income.
For impairment testing you have to split the business into CGUs because each would have a different degree of risk and therefore a different discount rate.
Corporate assets = head office. It may be difficult to decide which part of head office should be allocated to each CGU.
If company is unable to allocate head office or goodwill to CGUs – it makes the allocation of the allocation of any impairment loss extremely messy!
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