To keep things simple, complex asset (or also known as separate component asset) and cash generating unit (CGU) is more of a concept rather than kinds of assets. These concepts are there just to make accounting easy and hassle without disturbing the basic accounting concepts.
Complex asset is an asset in which different components are treated as separate asset to make deprecation calculations easier. Complex asset is simply a collection of such components that make up one real asset where each component cannot be put to use separately. For example an air craft. Even though each component cannot be termed as an “asset” as it is not capable of providing any economic benefit alone but still each component of one big asset is treated as a stand-alone asset for accounting purposes because of two main reasons:
- The value of each component is material
- The useful life of each component is different from the other and therefore one single depreciation rate cannot be applied to all of the components.
And if we do apply single rate of depreciation over the whole asset then it will materially misstate the financial statements of the entity.
This is inline with IAS 16 para 17 and 46 which, in few words, states that some assets may consists of different parts which may require replacement at regular intervals and thus the depreciation rate of such parts will be different as compared to the base structure of the asset.
Cash generating unit, on the other hand is basically a combination of stand-alone assets grouped together to make the impairment calculations easier. The impairment is calculated by comparing the carrying amount with expected future cash flows. Mostly it is done for each asset individually. But sometime production process is so complex that it is not possible compute which asset is adding how much value to the inventory and ultimately we are unable to divide the total cash flow generated by the group of asset involved in the production process.
In order to make things simple, we take all of the assets involved in the production process and group them together to be treated as one single unit or one single large cash generating unit. Now, we can compute how much cash is generated by this group which is then compared with the sum of carrying amounts of all the assets involved to determine the amount of impairment for whole cash generating unit.
Once we have the impairment we then divide it among the assets on proportionate basis using carrying amounts of each asset.
- Complex asset a.k.a. separate component asset is a group of different components that make up one real asset but each component cannot be put to use individually. Each component is not a stand-alone asset but it is treated as a separate asset to make the accounting of depreciation, recognition and derecognition easier.
- Cash generating unit is a group of stand-alone assets and can be put to use separately. Assets are grouped together in order to make accounting for impairment easier as sometimes it is impracticable to compute how much cash flow is generated by each asset individually in the production process.