What is cash generating unit?

IAS 36 IMPAIRMENT OF ASSETS
Under this IAS you should determine the Recoverable amount for the individual asset, if possible. [IAS 36.66]

If this is not possible, then you determine the recoverable amount for the cash-generating unit (CGU) to which that asset belongs. [IAS 36.66] The CGU is the smallest identifiable group of assets: [IAS 36.6]
* that generates cash inflows from continuing use, and
* that are largely independent of the cash inflows from other assets or groups of assets.
Identification of an asset's cash-generating unit involves judgement. If recoverable amount cannot be determined for an individual asset, an entity identifies the lowest aggregation of assets that generate largely independent cash inflows.

Example 1
A mining entity owns a private railway to support its mining activities. The railway is used to transport the ore mined and does not generate revenue the way passenger trains do. The private railway could be sold only for scrap value and it does not generate cash inflows that are largely independent of the cash inflows from the other assets of the mine.

It is not possible to estimate the recoverable amount of just the private railway by itself because its value in use cannot be determined and is probably different from scrap value. Therefore, the entity estimates the recoverable amount of the cash-generating unit to which the private railway belongs, i.e. the mine as a whole.

Example 2
A bus company provides services under contract with a municipality that requires minimum service on each of five separate routes. Assets devoted to each route and the cash flows from each route can be identified separately. One of the routes operates at a significant loss.

Because the entity does not have the option to curtail any one bus route (it MUST operate all five), the lowest level of identifiable cash inflows that are largely independent of the cash inflows from other assets or groups of assets is the cash inflows generated by the five routes together. The cash-generating unit for each route is the bus company as a whole.