Document ID: chunk:federal_register_of_legislation:F2023C00180:front:0:p46
Version: federal_register_of_legislation:F2023C00180
Segment Type: other
Provision Reference: 
Character Range: 118894–121527

managed in the same way as X. X and four other stores were purchased five years ago and goodwill was recognised.
What is the cash-generating unit for X (X's cash-generating unit)?

Analysis
IE2 In identifying X's cash-generating unit, an entity considers whether, for example:
(a) internal management reporting is organised to measure performance on a store-by-store basis; and
(b) the business is run on a store-by-store profit basis or on a region/city basis.
IE3 All M's stores are in different neighbourhoods and probably have different customer bases. So, although X is managed at a corporate level, X generates cash inflows that are largely independent of those of M's other stores. Therefore, it is likely that X is a cash-generating unit.
IE4 If X's cash-generating unit represents the lowest level within M at which the goodwill is monitored for internal management purposes, M applies to that cash-generating unit the impairment test described in paragraph 90 of AASB 136. If information about the carrying amount of goodwill is not available and monitored for internal management purposes at the level of X's cash-generating unit, M applies to that cash-generating unit the impairment test described in paragraph 88 of AASB 136.

B  Plant for an intermediate step in a production process

Background
IE5 A significant raw material used for plant Y's final production is an intermediate product bought from plant X of the same entity. X's products are sold to Y at a transfer price that passes all margins to X. Eighty per cent of Y's final production is sold to customers outside of the entity. Sixty per cent of X's final production is sold to Y and the remaining 40 per cent is sold to customers outside of the entity.
For each of the following cases, what are the cash-generating units for X and Y?
Case 1: X could sell the products it sells to Y in an active market. Internal transfer prices are higher than market prices.
Case 2: There is no active market for the products X sells to Y.

Analysis

Case 1
IE6 X could sell its products in an active market and, so, generate cash inflows that would be largely independent of the cash inflows from Y. Therefore, it is likely that X is a separate cash-generating unit, although part of its production is used by Y (see paragraph 70 of AASB 136).
IE7 It is likely that Y is also a separate cash-generating unit. Y sells 80 per 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