Advanced Accounting · AS 28 Impairment of Assets

AS 28: Cash Generating Units, Corporate Assets and Goodwill

Updated 4 October 2026 · Fact-checked

A cash generating unit (CGU) is the smallest group of assets whose cash inflows are largely independent of other assets. Under AS 28, you test the CGU as a whole, then allocate any impairment loss first to goodwill, then to other assets pro rata to carrying amounts, without reducing any asset below its floor.

Understand Cash Generating Units, Corporate Assets and Goodwill

Most assets do not earn cash on their own. A machine works with other machines, a building and staff to make products that are sold. So AS 28 cannot test every asset one by one. When you cannot estimate the recoverable amount of a single asset, you test the cash generating unit (CGU) it belongs to.

A CGU is the smallest identifiable group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows from other assets or groups of assets. Ask: if I removed this group, would the cash inflows of the rest stay mostly the same? If yes, it is a CGU. If an active market exists for the output of an asset or group, it is a CGU even if the output is used internally. Identify CGUs consistently from period to period unless a change is justified.

The recoverable amount of a CGU is the higher of its net selling price and its value in use. The carrying amount of a CGU includes only assets that can be attributed directly, or allocated on a reasonable and consistent basis, to the cash inflows being tested. Do not include recognised liabilities unless the recoverable amount cannot be found without them. If the carrying amount is higher than the recoverable amount, there is an impairment loss.

Goodwill does not generate cash flows by itself. It only helps other assets earn cash. So you allocate it to CGUs and test it with them. Corporate assets (such as head office building or central IT) are assets other than goodwill that contribute to the future cash flows of the CGU under review and also of other CGUs. Their carrying amount cannot be fully attributed to one CGU. You test them by a bottom-up approach first (allocate if you can on a reasonable and consistent basis), and move to a top-down step (a larger group of CGUs) if you cannot.

Once a CGU is found impaired, the loss is spread over its assets in a fixed order. Goodwill goes first. Then the other assets take the loss pro rata to their carrying amounts, subject to a floor for each asset.

Key rules to remember

Recoverable amount of a CGU: Recoverable amount = Higher of (Net selling price, Value in use); Use the CGU's own figures, not the sum of individual asset figures.
Impairment loss of a CGU: Impairment loss = Carrying amount of CGU − Recoverable amount (if carrying amount is higher); Carrying amount includes allocated goodwill and allocated corporate assets, where allocation is reasonable and consistent.
Order of allocating the loss: Step 1: reduce goodwill allocated to the CGU. Step 2: reduce other assets of the CGU pro rata to their carrying amounts.; Corporate assets allocated to the CGU are treated as part of the 'other assets'.
Share of loss for each other asset: Loss to asset = Remaining loss × (Carrying amount of asset ÷ Total carrying amount of the other assets); Use carrying amounts before the loss. Do not use values after the goodwill write-off.
Floor for each asset: An asset is not reduced below the highest of: its net selling price (if determinable), its value in use (if determinable), and zero; Any loss that cannot be given to that asset is allocated pro rata to the other assets of the unit.
Goodwill: bottom-up test: If goodwill can be allocated on a reasonable and consistent basis: compare recoverable amount of CGU with its carrying amount including goodwill. If not: test the CGU excluding goodwill, then test the smallest larger CGU to which goodwill can be allocated.; Recognise the loss at each step before moving on.
Corporate assets: bottom-up and top-down: If a portion of corporate assets can be allocated on a reasonable and consistent basis: test the CGU including that portion. If not: test the CGU excluding corporate assets, then test the smallest group of CGUs to which a portion can be allocated.; The larger group is compared with its carrying amount including the allocated corporate asset portion.

How to solve Cash Generating Units, Corporate Assets and Goodwill questions

Use this order for any CGU question. Keep a small table of carrying amounts so that every allocation step is visible to the examiner.

1Identify the CGU. Look for the smallest group of assets with largely independent cash inflows. Note any active market for the output.
2List the carrying amount of each asset in the CGU. Add the allocated goodwill and the allocated portion of corporate assets, if the question says the allocation is reasonable and consistent.
3Find the recoverable amount of the CGU as the higher of net selling price and value in use. Use the figures given for the whole CGU.
4Compute the impairment loss as total carrying amount minus recoverable amount. If the recoverable amount is higher, state that no impairment loss arises.
5Reduce goodwill first, up to the loss. If the loss is more than goodwill, carry the balance forward.
6Allocate the balance pro rata to the other assets on their carrying amounts. Check each asset against its floor (net selling price, value in use, zero).
7If any asset hits its floor, allocate the excess pro rata to the remaining assets and repeat the check.
8Show the post-loss carrying amounts. They must add up to the recoverable amount of the CGU. Write the journal entry or the charge to the Statement of Profit and Loss.

Quickest way: Table method for MCQs and written answers

When to use it: Use it when a question gives goodwill, several assets and a recoverable amount, and asks for the loss on one asset or the new carrying amount.

Add all carrying amounts including goodwill and corporate portion. Subtract the recoverable amount. That is the total loss.
Take goodwill off first. If goodwill covers the whole loss, every other asset stays unchanged. Many MCQs end here.
Find the percentage: remaining loss ÷ total of other assets. Apply this single percentage to each asset.
For an MCQ, check for a stated net selling price or value in use on one asset. If present, test the floor before choosing the answer.
In the written answer, draw a table with columns: Asset, Carrying amount, Loss allocated, Revised amount. Add a total row and tie it to the recoverable amount. This secures step marks even if one figure is wrong.

Common mistakes in Cash Generating Units, Corporate Assets and Goodwill

Allocating the loss pro rata across all assets including goodwill.
Students remember 'pro rata' and apply it to everything.
Fix: Remember the order: goodwill is reduced first, and only the balance is shared pro rata among the other assets.
Testing each asset separately when it does not generate independent cash inflows.
Students treat the asset's own value in use as available.
Fix: If the asset's recoverable amount cannot be determined individually, identify the CGU and test the CGU as a whole.
Ignoring the floor for an asset with a known net selling price.
Students stop once the pro rata split is done.
Fix: Always check the highest of net selling price, value in use and zero for each asset. Reallocate the excess to the other assets pro rata.
Using carrying amounts after the goodwill write-off as the base for the pro rata split.
Students update the table too early.
Fix: Goodwill is not part of the base, since it is fully dealt with first. The base is the carrying amount of the other assets before the loss.
Leaving out allocated corporate assets from the CGU's carrying amount, or including them when allocation is not reasonable and consistent.
Students are unsure when the bottom-up and top-down routes apply.
Fix: If the question says a portion can be allocated reasonably and consistently, include it. If not, test the CGU without it, then test the larger group of CGUs including the corporate asset.
Including liabilities in the CGU's carrying amount as a routine step.
Students think of net assets.
Fix: Exclude recognised liabilities unless the recoverable amount cannot be determined without considering them.

Worked examples

Example 1

A CGU has the following carrying amounts (₹ in lakh): Goodwill 200; Building 300; Plant 400; Other assets 200; and a portion of head office (corporate asset) allocated on a reasonable and consistent basis 100. The recoverable amount of the CGU is ₹900 lakh. Compute the impairment loss and allocate it.

Show the solution

Total carrying amount = 200 + 300 + 400 + 200 + 100 = ₹1,200 lakh.
Impairment loss = 1,200 − 900 = ₹300 lakh.
Reduce goodwill first: ₹200 lakh. Goodwill becomes nil.
Balance loss = 300 − 200 = ₹100 lakh. Allocate it pro rata over the other assets, whose total is 300 + 400 + 200 + 100 = ₹1,000 lakh. The rate is 100 ÷ 1,000 = 10%.
Building: 10% × 300 = ₹30 lakh. Plant: 10% × 400 = ₹40 lakh. Other assets: 10% × 200 = ₹20 lakh. Corporate portion: 10% × 100 = ₹10 lakh.
Check: 200 + 30 + 40 + 20 + 10 = ₹300 lakh. Revised carrying amounts: Building 270; Plant 360; Other assets 180; Corporate portion 90. Total = ₹900 lakh, which equals the recoverable amount.

Answer: Impairment loss is ₹300 lakh: Goodwill ₹200 lakh, Building ₹30 lakh, Plant ₹40 lakh, Other assets ₹20 lakh, Corporate portion ₹10 lakh.

Example 2

A CGU has three assets, with no goodwill: Machine A ₹100 lakh, Machine B ₹40 lakh and Machine C ₹60 lakh. The recoverable amount of the CGU is ₹150 lakh. The net selling price of Machine A is ₹85 lakh. Value in use of Machine A cannot be determined separately. Net selling price and value in use of B and C are not determinable and are taken as nil. Allocate the impairment loss.

Show the solution

Total carrying amount = 100 + 40 + 60 = ₹200 lakh. Impairment loss = 200 − 150 = ₹50 lakh.
There is no goodwill, so allocate pro rata on carrying amounts (200). Machine A: 50 × 100 ÷ 200 = ₹25 lakh. Machine B: 50 × 40 ÷ 200 = ₹10 lakh. Machine C: 50 × 60 ÷ 200 = ₹15 lakh.
Check the floor for Machine A. It cannot be reduced below ₹85 lakh (highest of net selling price ₹85 lakh and zero). So the maximum loss for A is 100 − 85 = ₹15 lakh.
Excess not allocable to A = 25 − 15 = ₹10 lakh. Allocate it to B and C pro rata to their carrying amounts (40 : 60).
Machine B: 10 × 40 ÷ 100 = ₹4 lakh. Machine C: 10 × 60 ÷ 100 = ₹6 lakh.
Final loss: A ₹15 lakh; B 10 + 4 = ₹14 lakh; C 15 + 6 = ₹21 lakh. Total = ₹50 lakh.
Revised carrying amounts: A ₹85 lakh; B ₹26 lakh; C ₹39 lakh. Total = ₹150 lakh, equal to the recoverable amount.

Answer: Total loss ₹50 lakh: Machine A ₹15 lakh, Machine B ₹14 lakh, Machine C ₹21 lakh. Revised carrying amounts are ₹85 lakh, ₹26 lakh and ₹39 lakh.

Exam tips

In MCQs, first check whether the loss is fully absorbed by goodwill. If so, the answer for any other asset is nil change.
Always write the floor check, even when it is not breached. State 'no asset is reduced below its net selling price' to show you know the rule.
Reading the question: words such as 'reasonable and consistent basis' tell you the corporate asset or goodwill is allocated. Words such as 'cannot be allocated' tell you to use the two-step larger-unit test.
Present the answer as a table with a totals row that ties to the recoverable amount. This is the easiest way to earn step marks.
Write the definition of CGU in one line in theory answers, then link it to the facts of the question (independent cash inflows, active market for output).

Practice questions from AS 28 Impairment of Assets

Cash Generating Units, Corporate Assets and Goodwill 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, Corporate Assets and Goodwill: frequently asked questions

How do I decide what is a cash generating unit in an exam question?

Look for the smallest group of assets whose cash inflows are largely independent of the rest. Facts like separate product lines, separate plants, or an active market for the output point to a CGU. Use the same grouping every year unless a change is justified.

Why is goodwill reduced first when allocating impairment loss?

Goodwill has no independent cash flows and its recoverable amount cannot be measured alone. AS 28 therefore treats it as the first asset to absorb the loss. Only the balance is shared pro rata among the other assets of the CGU.

What is the difference between bottom-up and top-down for corporate assets?

Under the bottom-up approach, you include a portion of corporate assets in the CGU when the allocation is reasonable and consistent. If it is not possible, you test the CGU without them and then test the smallest larger group of CGUs to which a portion can be allocated. That second step is the top-down approach.

Can an asset be reduced below its net selling price during allocation?

No. An asset is not reduced below the highest of its net selling price (if determinable), its value in use (if determinable) and zero. Any loss that cannot be given to it is allocated pro rata to the other assets of the CGU.