Valix Finacc vol 1 Problem 19-26

Financial Accounting Volume 1 2008 Valix-Peralta
Chapter 19 Problem 19-28

Case 1

1.       A is separate cash generating unit because there is an active market for A’s products.

2.   Although there is an active market for the products of B and C, cash inflows from B and     

      C depend on the allocation of production across two countries. It is unlikely that cash 

      inflows from B and C can be determined individually. Therefore, B and C, together

      should be treated as a cash generating unit.

Case 2

a.      A cannot be treated as a separate cash generating unit because its cash inflows depend on the sales of the final product by B and C, since there is no active market for A’s product.

b.      As a consequence, A, B and C, together, and therefore, Maximus Company, as a whole, should be treated as the largest single cash generating unit.