How do you identify a cash-generating unit?
The test looks at cash inflows, not outflows or shared costs. How management monitors operations, by product line, business, location or region, and how it decides whether to continue or dispose of assets, are useful evidence. Once identified, CGUs are kept the same from period to period unless a change is justified, and any change must be explained.
CGU examples
| Situation | Cash-generating unit | Why |
|---|---|---|
| A retail chain with 50 stores in different towns, each with its own customers | Each store | Each store's sales are largely independent of the others |
| Two stores in the same shopping centre that share customers and are managed together | Possibly the two together | Their inflows are not independent of each other |
| A bus operator with a contract requiring it to run five routes, one of which loses money | The five routes together | It cannot drop the loss-making route on its own |
| A mine whose ore is processed internally but could be sold on an active market | The mine | An active market for its output exists, so it is a CGU at market prices |
| A telecom operator's national mobile network | Often the whole network in a country | Individual sites do not generate independent revenue |
A worked example: a retail store
A retailer's store A has a carrying amount of 2.0 million, made up of fit-out and its right-of-use asset. Sales have fallen after a competitor opened nearby. The store's value in use is 1.6 million and its fair value less costs of disposal is lower. As the store is a CGU, the impairment loss is 0.4 million, spread across its assets in proportion to their carrying amounts. The rest of the chain's profits do not shelter it. See value in use.
How are corporate assets treated?
Corporate assets, such as a head office building, IT systems or a research centre, do not generate independent cash inflows. If a portion can be allocated to CGUs on a reasonable and consistent basis, for example by revenue or by carrying amount, each CGU is tested including its share. If not, the CGU is tested without them first, and then the smallest group of CGUs to which the corporate asset can be allocated is tested including it.
Do right-of-use assets belong in a CGU?
Yes. Right-of-use assets under IFRS 16 are part of the CGU's carrying amount, alongside the property, plant and equipment the unit uses. To compare like with like, the lease liability is normally excluded from the carrying amount and the lease payments excluded from the value in use cash flows, or both included consistently.
How does goodwill fit in?
Goodwill does not generate cash flows on its own, so it is allocated to the CGUs or groups of CGUs expected to benefit from the business combination. Each group must be no larger than an operating segment before aggregation. See goodwill impairment testing and IAS 36 explained.
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Questions people ask
What is a cash-generating unit under IAS 36?
The smallest identifiable group of assets that generates cash inflows largely independent of those from other assets or groups.
How do you identify a CGU?
Look for the smallest group of assets whose cash inflows are largely independent, using how management monitors operations and makes disposal decisions as evidence.
Is each store in a retail chain a CGU?
Often yes, if each store's sales are largely independent of the others.
How are corporate assets tested for impairment?
They are allocated to CGUs on a reasonable and consistent basis, or tested with the smallest group of CGUs to which they can be allocated.
Sources
Every fee, date and rule on this page was taken from these official and primary sources.
Rules and fees change. If you are reading this long after October 4, 2026, confirm the figures with the source before you rely on them.
Related guides
More in IAS 36
This guide is general information. It is not tax or legal advice for your situation.