Financial Reporting · Ind AS 36 Impairment of Assets

Cash-Generating Units and Corporate Assets under Ind AS 36

Updated 5 October 2026 · Fact-checked

A cash-generating unit (CGU) is the smallest group of assets that generates cash inflows largely independent of other assets. When an asset cannot be tested alone, you test its CGU. Allocate any loss first to goodwill, then pro rata to other assets by carrying amount, without going below each asset's floor. Corporate assets are tested through the CGUs they serve.

Understand Cash-Generating Units and Corporate Assets

Ind AS 36 tests an asset by comparing its carrying amount with its recoverable amount. Recoverable amount is the higher of fair value less costs of disposal and value in use. This works for a single asset only if it earns cash inflows on its own. Most assets do not. A machine on an assembly line earns nothing without the rest of the line.

So when you cannot estimate the recoverable amount of an individual asset, you test the cash-generating unit (CGU) it belongs to. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Look at inflows, not at how the entity is organised internally.

To identify a CGU, ask how management monitors the business. Does it track results by product line, plant, shop, or region? Also ask whether there is an active market for the output. If there is, the asset or group is a CGU even if the output is used internally, because you can estimate the cash inflows at market prices. Once you pick the CGUs, apply them consistently year to year. Change them only if you can justify the change.

If a CGU is impaired, you spread the loss across its assets in a fixed order. Goodwill allocated to the CGU is written down first. The remainder goes pro rata to the other assets, based on their carrying amounts. No asset may be reduced below the highest of its fair value less costs of disposal (if measurable), its value in use (if determinable) and zero. Any loss that cannot be given to one asset because of this floor goes to the other assets pro rata.

Corporate assets are assets other than goodwill that contribute to the future cash flows of both the CGU under review and other CGUs. Examples are a head office building, an IT platform or a research centre. They do not generate cash inflows on their own, so they cannot be tested alone. You allocate them to CGUs on a reasonable and consistent basis and test each CGU with its share included. If you cannot allocate on such a basis, you use a two-stage test, shown in the key rules below.

Key rules to remember

CGU definition: CGU = smallest identifiable group of assets generating cash inflows largely independent of other assets or groups; Test the CGU when recoverable amount of the individual asset cannot be estimated. An active market for the output makes the group a CGU, even if output is used internally.
Impairment loss of a CGU: Loss = Carrying amount of CGU − Recoverable amount of CGU (if positive); Recoverable amount = higher of fair value less costs of disposal and value in use. Carrying amount includes allocated goodwill and allocated corporate assets. It excludes recognised liabilities unless recoverable amount cannot be found without them.
Order of allocating the loss: 1) Goodwill allocated to the CGU. 2) Other assets pro rata: Loss to asset = Remaining loss × (Asset carrying amount ÷ Total carrying amount of the other assets); Pro rata is on carrying amounts, not on useful life or cost.
Floor for each asset: Asset cannot be reduced below the highest of: fair value less costs of disposal (if measurable), value in use (if determinable), zero; Reallocate the excess loss pro rata to the other assets of the CGU that still have room.
Goodwill allocation: Allocate to each CGU or group of CGUs expected to benefit from the synergies of the combination; Each unit or group must represent the lowest level at which goodwill is monitored for internal management purposes. It must not be larger than an operating segment before aggregation.
Corporate asset: allocation possible: Test: (CGU carrying amount + allocated share of corporate asset) vs CGU recoverable amount; Allocate on a reasonable and consistent basis. Typical bases are carrying amounts of the CGUs or a driver such as revenue or headcount.
Corporate asset: allocation not possible on a reasonable basis: Step 1: test the CGU without the corporate asset and recognise any loss. Step 2: find the smallest group of CGUs that includes this CGU and to which a share of the corporate asset can be allocated. Compare the group's carrying amount (with the corporate asset share) to the group's recoverable amount.; Recognise any further loss from Step 2 as well.

How to solve Cash-Generating Units and Corporate Assets questions

Use this order for any question on CGUs, allocation of loss or corporate assets. Write each step as a separate line so you collect step marks.

1Identify the CGU. State the smallest group with largely independent cash inflows, and give the reason, such as separate product line, separate plant or active market for output.
2List the carrying amount of every asset in the CGU. Add goodwill allocated to the CGU. Add the share of corporate assets if it can be allocated on a reasonable and consistent basis.
3Note the recoverable amount of the CGU, being the higher of fair value less costs of disposal and value in use. If only one is given, state whether it is enough to show there is no impairment.
4Compute the loss as total carrying amount less recoverable amount. If the recoverable amount is higher, state that there is no impairment.
5Allocate the loss. Goodwill first, then the other assets (including the corporate asset share) pro rata on carrying amounts.
6Check each asset against its floor, being the highest of fair value less costs of disposal, value in use and zero. Cap the loss, and reallocate the excess pro rata to the remaining assets.
7If the corporate asset could not be allocated, run the two-stage test: the CGU without it, then the smallest group of CGUs with it.
8Prove the answer. Total of losses must equal the CGU loss, and the revised carrying amounts must add up to the recoverable amount (unless a floor stopped the allocation).

Quickest way: Table-and-floor shortcut

When to use it: Use when the question gives a list of asset values, a recoverable amount of the CGU and perhaps a few fair values for individual assets. Most 10-15 mark allocation problems fit this.

Total all carrying amounts and subtract the recoverable amount. That is your loss. Write it first.
Knock off goodwill first. Carry only the balance forward.
Divide the balance over the other assets using carrying amounts as weights. Write the loss per asset in one column.
Scan the column for any asset with a given fair value less costs of disposal or value in use above its post-loss carrying amount. Cap that asset and push the excess to the others using their original weights.
Finish with a check line: total loss equals the CGU loss, and the revised carrying amounts total the recoverable amount.

Common mistakes in Cash-Generating Units and Corporate Assets

Treating each machine or building as a separate CGU even though they only earn cash together.
Students think of a CGU as a physical asset category rather than a unit of cash inflows.
Fix: Ask which assets must work together to earn cash inflows. Group them. Use the market-for-output test where it applies.
Allocating the loss pro rata across all assets including goodwill.
Pro rata feels fair and is the most memorised rule.
Fix: Goodwill goes first, in full up to its carrying amount. Only the balance is shared pro rata among the other assets.
Reducing an asset below its fair value less costs of disposal.
Students forget the floor once the pro rata arithmetic is done.
Fix: After each allocation, compare the revised carrying amount with the floor. Cap the loss and reallocate the excess to the other assets.
Testing a corporate asset on its own, or ignoring it altogether.
Students treat the head office as just another asset or as an overhead with no testing needed.
Fix: A corporate asset has no independent cash inflows. Allocate it to CGUs on a reasonable and consistent basis and test the CGU including that share. If allocation is not possible, use the two-stage test.
Applying the corporate asset loss to the head office only, or to the CGU's own assets only.
Students stop after finding the CGU loss and do not distribute it.
Fix: Once the corporate asset share is part of the CGU's carrying amount, it shares the loss pro rata with the CGU's other assets. Goodwill still goes first.
Changing CGU groupings from year to year to avoid a loss.
Students see grouping as a free choice.
Fix: State that CGUs are identified consistently from period to period for the same asset or types of assets. A change needs justification and disclosure.

Worked examples

Example 1

Case: Meridian Ltd runs a textile plant that is a CGU. At the reporting date the carrying amounts (₹ lakh) are: goodwill ₹100, building ₹300, plant and machinery ₹500, a patent ₹200. The recoverable amount of the CGU is ₹800. The fair value less costs of disposal of the patent is ₹180 and the other assets have no measurable fair value. Allocate the impairment loss.

Show the solution

Total carrying amount = 100 + 300 + 500 + 200 = ₹1,100 lakh. Recoverable amount = ₹800 lakh. Impairment loss = ₹300 lakh.
Goodwill first: write off ₹100 lakh. Balance loss = ₹200 lakh, to be shared among the building, plant and patent. Their total carrying amount is ₹1,000 lakh.
Pro rata: building = 200 × 300 ÷ 1,000 = ₹60 lakh. Plant = 200 × 500 ÷ 1,000 = ₹100 lakh. Patent = 200 × 200 ÷ 1,000 = ₹40 lakh.
Floor check: the patent would be reduced to 200 − 40 = ₹160 lakh, below its fair value less costs of disposal of ₹180 lakh. Its loss is capped at 200 − 180 = ₹20 lakh. Excess of ₹20 lakh is reallocated to the building and plant in the ratio 300 : 500.
Reallocation: building = 20 × 3/8 = ₹7.5 lakh. Plant = 20 × 5/8 = ₹12.5 lakh.
Final losses: goodwill ₹100 lakh, building 60 + 7.5 = ₹67.5 lakh, plant 100 + 12.5 = ₹112.5 lakh, patent ₹20 lakh. Total = 100 + 67.5 + 112.5 + 20 = ₹300 lakh.
Revised carrying amounts: goodwill nil, building ₹232.5 lakh, plant ₹387.5 lakh, patent ₹180 lakh. Total = ₹800 lakh, which equals the recoverable amount.

Answer: Impairment loss of ₹300 lakh: goodwill ₹100 lakh, building ₹67.5 lakh, plant and machinery ₹112.5 lakh, patent ₹20 lakh. The CGU is carried at ₹800 lakh.

Example 2

Case: Orion Ltd has two CGUs, A and B. It also owns a head office building with a carrying amount of ₹200 lakh that serves both. Carrying amounts (₹ lakh) are A ₹400 and B ₹600, excluding the head office. Recoverable amounts are A ₹450 and B ₹690. Orion allocates the head office to the CGUs in proportion to their carrying amounts, which it considers reasonable and consistent. Neither CGU has goodwill. Compute and allocate any impairment loss.

Show the solution

Allocate the head office on carrying amounts: A = 200 × 400 ÷ 1,000 = ₹80 lakh. B = 200 × 600 ÷ 1,000 = ₹120 lakh.
CGU A including its share: 400 + 80 = ₹480 lakh. Recoverable amount ₹450 lakh. Loss = ₹30 lakh.
CGU B including its share: 600 + 120 = ₹720 lakh. Recoverable amount ₹690 lakh. Loss = ₹30 lakh.
Spread A's loss pro rata on carrying amounts (A's own assets 400, head office share 80, total 480): A's own assets = 30 × 400 ÷ 480 = ₹25 lakh. Head office share = 30 × 80 ÷ 480 = ₹5 lakh.
Spread B's loss (B's own assets 600, head office share 120, total 720): B's own assets = 30 × 600 ÷ 720 = ₹25 lakh. Head office share = 30 × 120 ÷ 720 = ₹5 lakh.
Head office total loss = 5 + 5 = ₹10 lakh. Revised head office carrying amount = 200 − 10 = ₹190 lakh.
Check: total loss = 25 + 25 + 10 = ₹60 lakh, which equals 30 + 30.

Answer: Impairment loss is ₹30 lakh in each CGU, ₹60 lakh in total: A's own assets ₹25 lakh, B's own assets ₹25 lakh and head office ₹10 lakh. The head office is carried at ₹190 lakh.

Exam tips

Start every answer with the CGU identification and a one-line reason. Examiners give marks for the reasoning on independence of cash inflows.
Always write the order of allocation in words before the figures: goodwill first, then pro rata. It earns marks even if arithmetic slips.
If a fair value less costs of disposal or value in use is given for one asset, expect the floor check to be tested. Do it explicitly and show the reallocation.
In corporate asset questions, state the allocation basis and say whether it is reasonable and consistent. If the question says no reasonable basis exists, switch to the two-stage test.
End with a proof line that total loss equals the CGU loss. It also catches errors before you submit.

Practice questions from Ind AS 36 Impairment of Assets

Cash-Generating Units and Corporate Assets in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Cash-Generating Units and Corporate Assets: frequently asked questions

What is a cash-generating unit under Ind AS 36?

It is the smallest identifiable group of assets that generates cash inflows largely independent of the cash inflows from other assets or groups. You use it when the recoverable amount of an individual asset cannot be estimated on its own. If there is an active market for the output, the group is a CGU even if the output is used internally.

In what order is an impairment loss allocated within a CGU?

First reduce the carrying amount of goodwill allocated to the CGU. Then reduce the other assets pro rata, based on their carrying amounts. No asset is reduced below the highest of its fair value less costs of disposal, its value in use (if determinable) and zero.

How are corporate assets tested for impairment?

Corporate assets do not generate independent cash inflows, so they are tested with the CGUs they serve. If a part can be allocated on a reasonable and consistent basis, test each CGU including its share. If not, test the CGU without it first, then test the smallest group of CGUs to which a share can be allocated.

Do liabilities form part of a CGU's carrying amount?

Generally no. Recognised liabilities are excluded, unless the recoverable amount of the CGU cannot be determined without considering them. Keep the carrying amount and the cash flows on the same basis.