Document ID: chunk:federal_register_of_legislation:F2023C00180:front:0:p47
Version: federal_register_of_legislation:F2023C00180
Segment Type: other
Provision Reference: 
Character Range: 121282–123827

cent of its products to customers outside of the entity. Therefore, its cash inflows can be regarded as largely independent.
IE8 Internal transfer prices do not reflect market prices for X's output. Therefore, in determining value in use of both X and Y, the entity adjusts financial budgets/forecasts to reflect management's best estimate of future prices that could be achieved in arm's length transactions for those of X's products that are used internally (see paragraph 70 of AASB 136).

Case 2
IE9 It is likely that the recoverable amount of each plant cannot be assessed independently of the recoverable amount of the other plant because:
(a) the majority of X's production is used internally and could not be sold in an active market. So, cash inflows of X depend on demand for Y's products. Therefore, X cannot be considered to generate cash inflows that are largely independent of those of Y.
(b) the two plants are managed together.
IE10 As a consequence, it is likely that X and Y together are the smallest group of assets that generates cash inflows that are largely independent.

C  Single product entity

Background
IE11 Entity M produces a single product and owns plants A, B and C. Each plant is located in a different continent. A produces a component that is assembled in either B or C. The combined capacity of B and C is not fully utilised. M's products are sold worldwide from either B or C. For example, B's production can be sold in C's continent if the products can be delivered faster from B than from C. Utilisation levels of B and C depend on the allocation of sales between the two sites.
For each of the following cases, what are the cash-generating units for A, B and C?
Case 1: There is an active market for A's products.
Case 2: There is no active market for A's products.

Analysis

Case 1
IE12 It is likely that A is a separate cash-generating unit because there is an active market for its products (see Example B – Plant for an intermediate step in a production process, Case 1).
IE13 Although there is an active market for the products assembled by B and C, cash inflows for B and C depend on the allocation of production across the two sites. It is unlikely that the future cash inflows for B and C can be determined individually. Therefore, it is likely that B and C together are the smallest identifiable group of assets that generates cash inflows that are largely independent.
IE14 In determining the value in use of A and B plus C, M adjusts financial budgets/forecasts to reflect its best estimate of