To determine the Cash-Generating Units (CGUs) for Bangkok, Lagos, and Nairobi under the two cases, we apply the IFRS definition of a CGU:

CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. (IAS 36 – Impairment of Assets)

     i) Active Market Exists for Bangkok’s Component B

• Bangkok produces Component B.
• Component B can be sold to Lagos, Nairobi, external customers, or both.

Thus, Bangkok has its own independent cash inflows, since it can generate revenue independently.

Implication for CGU assessment:

• Bangkok: Since it can sell Component B externally, it generates largely independent cash inflows, therefore it is its own CGU.
• Lagos & Nairobi: These facilities assemble the final product and sell globally. Their inflows are based on the sales of the finished generator products, therefore, each is its own CGU, as they generate cash inflows from sales that are not dependent on each other.

        ii) No Active Market for Bangkok’s Component B

• Bangkok still produces Component B.
• But Component B has no external market.
• The component is only useful internally by Lagos and Nairobi (no third-party buyers).
• Therefore, Bangkok cannot generate independent cash inflows as its value is entirely tied to Lagos and Nairobi operations.

          Implication for CGU assessment:

• Bangkok: Since it cannot sell independently, its inflows are interdependent with Lagos and Nairobi. It cannot be a CGU on its own.
• If Lagos and Nairobi can generate largely independent cash inflows (e.g. through separate sales channels, customer bases, or markets), then they can be separate CGUs.
• If not, and their operations are tightly integrated (e.g., both rely on shared resources, customers, or combined logistics), they might be considered a combined CGU.

b)

The asset is the land, not the land and factory combined. The fair value should reflect the land as a standalone asset, based on its highest and best use from a market participant’s point of view.

Per IFRS 13, the highest and best use must be: Physically possible: Is development physically feasible? Yes. Legally permissible: Rezoning is required but possible, and the costs are known (GH¢1 million). Financially feasible: The value must exceed development and rezoning costs.

Developer-based HBU:  Gross land value (after development and margin): GH¢17 million Less: Rezoning/legal costs: GH¢1 million Less: Demolition costs: GH¢2 million Net Value: GH¢14 million

The highest and best use is for residential development, as it yields a higher fair value (GH¢14m) than the current use (GH¢10m).

Other key issues Bakoa PLC may have no intention or ability to demolish the factory. But this is not relevant to fair value – only market participants’ assumptions matter.

c)

Under IAS 37: Provisions, Contingent Liabilities and Contingent Assets, the East Africa Oil Pipeline Company LTD must assess whether the potential environmental damage gives rise to:

• A present obligation (legal or constructive),
• A probable outflow of economic resources, and
• A reliable estimate of the obligation.

IAS 37 defines a present obligation as:

• Legal obligation: from a contract, legislation, or other operation of law.
• Constructive obligation: arises from an entity’s actions where:
  • It has indicated to other parties it will accept certain responsibilities, and
  • As a result, a valid expectation has been created.

There is no mention of any legal requirement compelling the company to clean up environmental damage.

However, the constructive obligation may arise if:

• The company has a track record of addressing such damages,
• It has made public or internal commitments to protect the environment or local species,
• Or there is community expectation based on past behavior.

If none of the above exist, and no actual leak has occurred yet, there is no present obligation. Therefore, no provision should be recognized.

Is an outflow of resources probable? An outflow is considered probable when it is more likely than not (i.e. >50%) that an outflow of resources will be required. The internal engineers have noted undetected weaknesses that could eventually lead to leaks. However, this suggests the event is possible, not probable. If the company cannot conclude that leaks are more likely than not, no provision should be made, instead, the company should consider disclosing a contingent liability.

Can the amount be reliably estimated? The reintroduction cost of rhinos is stated as GH¢1,750,000, which can serve as a reliable estimate of the environmental damage. So, if there are a present obligation and a probable outflow, this amount could form the basis of a provision.

If no leak has occurred and damage is only a possible future event:

• There is no present obligation.
• There is no provision to be recognized.
• The company should disclose a contingent liability, stating the nature of the potential leak and the estimated cost (GH₵1,750,000) if it were to occur.