Question

CA-x (a corporate asset) is a distribution facility that supports two of Best Mart’s (BM) retail stores. For impairment testing purposes, the two stores are classified as cash-generating units CGU-x and CGU-y. CGU- x has a carrying amount of 450,000. CGU-y has a carrying amount of 200,000. In addition to those carrying amounts, BM has decided to allocate the carrying amount of CA-x on a 60/40 basis to CG-x and CG- y respectively. The carrying amount of CA-x is $200,000. BM has determined that the recoverable amounts of CGU-x and CGU-y are $525,000 and $300,000. Determine if either of the cash-generating units is impaired and by how much.

Answer 1

An impairment loss shall be recognised for a cash-generating unit if the recoverable amount of the unitis less than the carrying amount of the unit.

	CGU - X	CGU - Y
Individual Carrying Amount	4,50,000	2,00,000
Allocation of Corporate Asset	1,20,000	80,000
Total carrying value	5,70,000	2,80,000
Recoverable amount	5,25,000	3,00,000
Excess of Carrying amount over Recoverable amount	45,000	(20,000)

Thus, CGU - X is impaired by $ 45,000.

CGU - Y is not impaired