# AS 28: Cash Generating Unit (CGU)

## Why CGUs Are Necessary

Some assets cannot generate cash flows independently. A microphone used in online teaching is worthless alone — it works only as part of a system (mic + laptop + camera + projector).

When an individual VIU cannot be estimated, the standard requires grouping the assets into the smallest unit that can.

## Definition

A Cash Generating Unit (CGU) is the smallest identifiable group of assets that generates cash inflows from continuing use that are largely independent of cash inflows from other assets or groups.

> A single company can operate multiple CGUs simultaneously.

> Example: Online teaching setup = CGU 1; Offline teaching setup = CGU 2.

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## Impairment Test of a CGU — Four Steps

Step	Action
1	Sum the carrying amounts of all assets in the CGU
2	Determine the Recoverable Amount of the CGU as a whole
3	Compute Impairment Loss = Total CA − RA (if positive)
4	Allocate impairment loss to individual assets in proportion to their carrying amounts

### Allocation Constraint

No individual asset's CA can be reduced below its own individual recoverable amount (if it can be separately determined). Any excess must be reallocated to the remaining assets.

Worked example

### Example 1

CGU Impairment Allocation — Online Teaching Setup:

Assets: Laptop, Camera, Mic, iPad (all interdependent — cannot generate cash alone)

Asset	Carrying Amount	Weight
Laptop	₹200	200/650
Camera	₹300	300/650
Mic	₹100	100/650
iPad	₹50	50/650
Total	₹650

Recoverable Amount of CGU = ₹520

Impairment Loss = ₹650 − ₹520 = ₹130

Allocation in ratio of CA:

Asset	CA	IL = 130 × CA/650	Revised CA
Laptop	200	40	160
Camera	300	60	240
Mic	100	20	80
iPad	50	10	40
Total	650	130	520

⚠️ Common exam mistakes

Testing each asset individually when they share interdependent cash flows — grouping into a CGU is mandatory in such cases.
Allocating impairment loss equally across assets instead of in proportion to carrying amounts.
Ignoring the individual RA floor constraint — no asset's CA should fall below its own individually determinable RA during CGU allocation.
Defining a CGU too broadly (e.g., the entire company as one CGU) — it must be the smallest identifiable group.

Bare-Act text Para 6 · AS 28 (ICAI) · click to expand

A cash generating unit 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.

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AS 28 — Cash Generating Unit (CGU): Concept and Impairment Testing

Worked example

⚠️ Common exam mistakes