Homes Furniture R Us Ltd has three separate operating divisions. First is the timber division which produces milled timber. This division has a number of timber plantations and timber mills which produce finished timber. The majority of the timber is sold, at an internal transfer price, to the second division which is the parts division with any excess timber being sold to external parties. The parts division is responsible for turning the timber into parts for the making of timber furniture, both indoor and outdoor. These parts are suitable only for the manufacture of furniture produced by Homes Furniture R Us Ltd. The parts are transferred, at internal transfer prices, to the third division which is the furniture division. The furniture division assembles the furniture and delivers it to the various outlets that retail the Homes Furniture R Us Ltd’s products.
1. Identify the cash-generating unit or units, give explanations to justify your decision for each division.
2. Would your decision be different if the parts division was to make parts for kit furniture that could be sold to customers for self-assembly?
3. Explain why impairment testing for CGU’s does not focus on individual assets. Cite the relevant paragraphs from AASB 136 to justify your argument.