Fresh Milk Ltd owns a large number of dairy farms in Queensland. It has a number of factories that are used to produce milk products that are then sent to other factories to be converted into milk-based products such as yoghurt and custard. In applying AASB 136 Impairment of Assets, the accountant for Fresh Milk Ltd is concerned about correctly identifying the cash-generating units (CGUs) for the company, and has sought your advice on such questions as to whether the milk production section is a separate CGU even though the company does not sell milk directly to other parties, or whether it should be included in the milk-based products CGU.

Required:

Explain the following to the accountant of Fresh Milk Ltd

a) What a CGU is.

b) Explain the factors that the accountant should consider in determining the CGUs for Fresh Milk Ltd.