Super Glory Paper and Paper Board Ltd (SGPPL) owns a large number of pulp and paper manufacturing plants in Tasmania. It has a number of factories that are used to produce paper pulps that are sent to other factories to be converted into paper and paperboards. The management has noted that the companys share prices are continuously dropping in the current year due to declining profits associated with various issues faced by the company. The accountant of the company is now considering whether the company needs to impair the assets owned by the company. In applying AASB 136 Impairment of Assets, the accountant for SGPPL is concerned about correctly identifying the cash-generating units (CGUs) for the company in recognizing impairment losses for each factory/unit. The accountant has sought your advice on such questions as to whether the pulp production section is a separate CGU even though the company does not sell paper pulp directly to external parties, or whether it should be included in the paper and paperboard producing CGU. The company is considering undertaking an impairment test under AASB 136 impairment of assets.

Question

1. Define a CGU in accordance with AASB 136, giving reasons for your conclusions.
2. Explain why impairment testing requires the use of CGUs, rather than being based on single assets.