Cash Generating Account

Various banks and financial institutions have come up with the establishment of the cash generating units and accounts. Basically these units and accounts are subjected to the testing of annual impairment if there exists any in the banking systems and the accounts.

Testing procedures

There are various aspects of the impairment testing procedures. Most of these are concerned with the comparison of the accounts especially those which are carrying some specific amount. The major attributes of testing of the cash generating accounts involves determination of goodwill, property management and scrutiny, intangible assets and equipments. All these parameters are subjected to the annual impairment testing procedures.

Major characteristic of cash generating account

The most important characteristic of property of any cash generating unit is the working capital of that unit. The working capital is basically concerned with the recoverable value of the units or accounts. There is a recovery value of every unit and the calculation of cash generating units is concerned with the recovery values of the units or accounts. The recovery value of the cash generating units is determined by means of the calculation of the economic value of these units respectively. The base of these calculations of units is on the future of cash of units. Usually the cash flows in discounted rates and this flow is enabled by adding the discount factor in the units as well.

Calculating the future cash flows

Other than calculating the present scenario of the cash generating and capital flow in units and accounts, the calculations are also concerned with the future flows of cash and capital across the units and accounts as well. The major concerns of these studies and calculations include the past and present performance of the units, income which is actually received from the operations, budget values and projection studies of external as well as internal markets. According to studies, it has been shown that there is a projection of about seven years in the market performance study and analysis.

Judging the performance

Certain assumptions are also made in the light of past performance of the accounts and units. These assumptions are based on determining of the economic values and related concerns of the growth of revenue and development.