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1000 word short essay about :Impairment loss for cash generating units excluding goodwill.

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1000 word short essay about :Impairment loss for cash generating units excluding goodwill.
Answered Same Day May 17, 2020

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Akansha answered on May 20 2020
134 Votes
Impairment loss
The impairment loss for cash generating
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Introduction
Impairment of Assets" is designed to ensure that entity's assets do not exceed from its total recoverable amount except for the goodwill and some intangible assets that need yearly impairment tests. The entity should conduct the impairment test if there is evidence of asset impairment, as well as the test, could be conducted for “money generating units”. The asset will not generate a lot of independence. The Impairment of Assets was issued in March 2004 and also apply to goodwill and the intangible assets acquired in the business combinations on March 31, 2004, along with all other assets in the first quarter of 2013. Impairment of Assets specifies when the entity wants to perform impairment tests, how to do impairment tests, and confirm several impairment losses as well as related disclosures. The scope of application of impairment loss for the cash generating units apart from goodwill is vast.
The impairment loss for cash-generating units excluding goodwill
If there are any signs of impairment (as may be the case with the cu
ent economic situation), the entity should estimate the recoverable amount of the assets affected by the economic downturn (Kabir, Rahman and Su, 2017). The operation of most SMEs can be structured in such a way that individual noncu
ent assets do not have to generate their cash flow but cooperate with other assets to create cash flow for the entity. If the recoverable amount of unit is lesser than the book value of a group, the cash-generating unit should be recognised as impaired (Guler, 2016). In short, the accounting treatment for impairment losses is as follows: Recognition of impairment losses relates firstly to goodwill and then to the distribution of the book value of each asset of the cash-generating unit. Assume that the company has a fruit packaging factory in the business portfolio. Individual holdings of fruit packaging plants cannot generate independent cash flow. Any goodwill calculated on the business combination day will be distributed to the Fruit Packaging Factory (CGU) (Ji, 2013).
Sometimes, it is not possible to determine the recoverable amount of certain assets because they are the part of specific asset groups and do not generate their cash inflows. For example, the pizzeria pizza oven-pizza oven itself does not produce anything. Therefore, Impairment of Assets introduces the concept of (CGU), which is the smallest team...
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