Monash Cow Ltd: A Case Study

There are some assets that do not generate cash flows independently from those of other assets. For instance, milking machines in the milk production sector which perform tasks such as separating the cream from milk generally do not generate their independent cash flows. The cash flows ultimately come from the sale of the milk products such as custard and yoghurt. The problem lies here as AASB 136 paragraph 67 mentions that an asset’s recoverable amount cannot be determined if the asset’s value cannot be estimated to be close to its fair value less costs to sell and the asset does not create cash flows that are largely independent of those from other assets (Leo et al., 2014). Hence, the recoverable amount can only be determined for the asset’s cash generating unit and impairment tests are conducted in cash generating units.

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Firstly, what should be considered is how management monitors the entity 's operation such as product lines, district or regional areas (Leo et al., 2014). In this case, since Monash Cow Ltd has factories across different locations in Victoria, it could be either by factory, by dairy product or by district.

Secondly, how management makes decisions about continuing or disposal of the entity 's assets and operations needs to be considered (Leo et al., 2014). What needs to be considered here is how the business could possibly be broken down into parts that could be sold off should management wish to sell off part of the business yet still possess an operational