IE12 It is likely that A is a separate cash-generating unit because there is an active market for its products (see Example B - Plant for an Intermediate Step in a Production Process, Case 1).
IE13 Although there is an active market for the products assembled by B and C, cash inflows for B and C depend on the allocation of production across the two sites. It is unlikely that the future cash inflows for B and C can be determined individually. Therefore, it is likely that B and C together are the smallest identifiable group of assets that generates cash inflows that are largely independent.
IE14 In determining the value in use of A and B plus C, M adjusts financial budgets/forecasts to reflect its best estimate of future prices that could be achieved in arm's length transactions for A's products (see paragraph 70 of IAS 36).
Case 2

IE15 It is likely that the recoverable amount of each plant cannot be assessed independently because:
(a) there is no active market for A's products. Therefore, A's cash inflows depend on sales of the final product by B and C.
(b) although there is an active market for the products assembled by B and C, cash inflows for B and C depend on the allocation of production across the two sites. It is unlikely that the future cash inflows for B and C can be determined individually.
IE16 As a consequence, it is likely that A, B and C together (ie M as a whole) are the smallest identifiable group of assets that generates cash inflows that are largely independent.
D - Magazine Titles
Background

IE17 A publisher owns 150 magazine titles of which 70 were purchased and 80 were self-created. The price paid for a purchased magazine title is recognised as an intangible asset. The costs of creating magazine titles and maintaining the existing titles are recognised as an expense when incurred. Cash inflows from direct sales and advertising are identifiable for each magazine title. Titles are managed by customer segments. The level of advertising income for a magazine title depends on the range of titles in the customer segment to which the magazine title relates. Management has a policy to abandon old titles before the end of their economic lives and replace them immediately with new titles for the same customer segment.
What is the cash-generating unit for an individual magazine title?
Analysis

IE18 It is likely that the recoverable amount of an individual magazine title can be assessed. Even though the level of advertising income for a title is influenced, to a certain extent, by the other titles in the customer segment, cash inflows from direct sales and advertising are identifiable for each title. In addition, although titles are managed by customer segments, decisions to abandon titles are made on an individual title basis.
IE19 Therefore, it is likely that individual magazine titles generate cash inflows that are largely independent of each other and that each magazine title is a separate cash-generating unit.
E - Building Half-Rented to Others and Half-Occupied for Own Use
Background
IE20 M is a manufacturing company. It owns a headquarters building that used to be fully occupied for internal use. After down-sizing, half of the building is now used internally and half rented to third parties. The lease agreement with the tenant is for five years.
What is the cash-generating unit of the building?
Analysis

IE21 The primary purpose of the building is to serve as a corporate asset, supporting M's manufacturing activities. Therefore, the building as a whole cannot be considered to generate cash inflows that are largely independent of the cash inflows from the entity as a whole. So, it is likely that the cash-generating unit for the building is M as a whole.
IE22 The building is not held as an investment. Therefore, it would not be appropriate to determine the value in use of the building based on projections of future market related rents.

Example 2 - Calculation of Value in Use and Recognition of an Impairment Loss
In this example, tax effects are ignored.
Background and Calculation of Value in Use
IE23 At the end of 20X0, entity T acquires entity M for CU10,000. M has manufacturing plants in three countries.
Schedule 1. Data at the end of 20X0
     Allocation of purchase price CU    Fair value of identifiable assets CU    Goodwill CU*
Activities in Country A    3,000    2,000    1,000
Activities in Country B    2,000    1,500    500
Activities in Country C    5,000    3,500    1,500
Total    10,000    7,000    3,000
* Activities in each country represent the lowest level at which the goodwill is monitored for internal management purposes (determined as the difference between the purchase price of the activities in each country, as specified in the purchase agreement, and the fair value of the identifiable assets).
IE23A Because goodwill has been allocated to the activities in each country, each of those activities must be tested for impairment annually or more frequently if there is any indication that it may be impaired (see paragraph 90 of IAS 36).

IE24 The recoverable amounts (ie higher of value in use and fair value less costs to sell) of the cash-generating units are determined on the basis of value in use calculations. At the end of 20X0 and 20X1, the value in use of each cash-generating unit exceeds its carrying amount. Therefore the activities in each country and the goodwill allocated to those activities are regarded as not impaired.
IE25 At the beginning of 20X2, a new government is elected in Country A.
It passes legislation significantly restricting exports of T's main product. As a result, and for the foreseeable future, T's production in Country A will be cut by 40 per cent.
IE26 The significant export restriction and the resulting production decrease require T also to estimate the recoverable amount of the Country A operations at the beginning of 20X2.

IE27 T uses straight-line depreciation over a 12-year life for the Country A identifiable assets and anticipates no residual value.
IE28 To determine the value in use for the Country A cash-generating unit (see Schedule 2), T:
(a) prepares cash flow forecasts derived from the most recent financial budgets/forecasts for the next five years (years 20X2-20X6) approved by management.
(b) estimates subsequent cash flows (years 20X7-20Y2) based on declining growth rates. The growth rate for 20X7 is estimated to be 3 per cent. This rate is lower than the average long-term growth rate for the market in Country A.
(c) selects a 15 per cent discount rate, which represents a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the Country A cash-generating unit.
Recognition and Measurement of Impairment Loss
IE29 The recoverable amount of the Country A cash-generating unit is CU1,360.
IE30 T compares the recoverable amount of the Country A cash-generating unit with its carrying amount (see Schedule 3).

IE31 Because the carrying amount exceeds the recoverable amount by CU1,473, T recognises an impairment loss of CU1,473 immediately in profit or loss. The carrying amount of the goodwill that relates to the Country A operations is reduced to zero before reducing the carrying amount of other identifiable assets within the Country A cash-generating unit (see paragraph 104 of IAS 36).
IE32 Tax effects are accounted for separately in accordance with IAS 12 Income Taxes (see Illustrative Example 3A).

Schedule 2. Calculation of the value in use of the Country A cash-generating unit at the beginning of 20X2
Year    Long-term growth rates    Future cash flows CU    Present value factor at 15% discount rate§    Discounted future cash flows CU
20X2 (n=1)         230*    0.86957    200
20X3         253*    0.75614    191
20X4         273*    0.65752    180
20X5         290*    0.57175    166
20X6         304*    0.49718    151
20X7    3%    313†    0.43233    135
20X8    -2%    307†    0.37594    115
20X9    -6%    289†    0.32690    94
20Y0    -15%    245†    0.28426    70
20Y1    -25%    184†    0.24719    45
20Y2    -67%    61†    0.21494    13
Value in use                   1,360
* Based on management's best estimate of net cash flow projections (after the 40% cut).