What Is a Cash-Generating Unit?
A cash-generating unit is the smallest group of assets that generates largely independent cash inflows — the level at which IAS 36 tests impairment when a single asset can't. Here's what it means.
A cash-generating unit (CGU) is the smallest identifiable group of assets that generates cash inflows largely independent of the cash inflows from other assets or groups of assets. It matters because IAS 36 uses the CGU when you cannot estimate the recoverable amount of an individual asset on its own.
Why the CGU concept exists
Many assets do not generate cash independently — a single machine on a production line, for example, only produces cash as part of the whole line. When that is the case, you test the CGU for impairment rather than the individual asset.
How impairment is allocated within a CGU
If a CGU is impaired, IAS 36 allocates the loss in a set order:
- First against any goodwill allocated to the CGU.
- Then pro-rata across the other assets in the unit based on their carrying amounts.
- But no individual asset is written below the highest of its fair value less costs of disposal, its value in use, or zero.
Identifying the right CGU is a matter of judgement, and examiners often test whether you can justify the boundary using the scenario.
In SBR, the marks are in defining the CGU, testing it and allocating the loss correctly. Marking a full impairment answer against the official ACCA scheme with The 50% Club shows you exactly which of those steps earned marks.