How to account for property, plant, and equipment under IFRS and US GAAP: Depreciation, impairment, and revaluation

Graziano Stefanelli
Sep 13
3 min read

Property, plant, and equipment (PPE) form the backbone of capital-intensive industries. They are long-term assets that generate economic benefits over multiple periods and require specific accounting for acquisition, usage, maintenance, and eventual disposal. Both IFRS (IAS 16) and US GAAP (ASC 360) define comprehensive guidance on the recognition, measurement, depreciation, and impairment of PPE. While the basic principles are aligned, some key policy choices and optional treatments differ, particularly around revaluation, component depreciation, and impairment reversal.

PPE must meet specific criteria to be recognized as an asset.

Property, plant, and equipment include tangible assets held for use in the production or supply of goods and services, or for administrative purposes, with an expected useful life of more than one year. Common categories include:

Land and buildings
Machinery and equipment
Vehicles
Leasehold improvements
Furniture and fixtures

Initial recognition occurs when:

It is probable that future economic benefits associated with the item will flow to the entity.
The cost of the item can be measured reliably.

Initial measurement is at cost, including:

Purchase price (net of discounts)
Import duties and taxes
Directly attributable costs (site preparation, delivery, installation, professional fees)
Initial dismantling/restoration obligations (asset retirement obligations)

Subsequent measurement differs due to the revaluation model.

After initial recognition, IFRS (IAS 16) permits two models:

Cost model: Assets are carried at cost less accumulated depreciation and impairment losses.
Revaluation model: Assets are carried at fair value, remeasured regularly, less subsequent depreciation.

US GAAP (ASC 360) allows only the cost model, with no option for revaluation.

Aspect	IFRS (IAS 16)	US GAAP (ASC 360)
Measurement after recognition	Cost or revaluation model	Cost model only
Revaluation frequency	Regularly to ensure fair value	Not applicable
Revaluation surplus	Recognized in OCI	Not applicable

Depreciation must reflect the asset's pattern of consumption.

Both standards require systematic depreciation of PPE, except for land (which is not depreciated). Key elements include:

Depreciable amount: Cost less residual value.
Useful life: Based on expected usage, wear and tear, legal or contractual limits.
Depreciation method: Must reflect the pattern in which benefits are consumed.

Common methods:

Straight-line
Declining balance
Units of production

IFRS emphasizes the component approach, requiring significant parts of an asset with different useful lives to be depreciated separately. This is encouraged but not explicitly required under US GAAP.

Changes in estimates (useful life, residual value, or method) must be accounted for prospectively as changes in accounting estimates.

Impairment testing is required when indicators of impairment exist.

IFRS (IAS 36):

Trigger-based impairment model.
Compare carrying amount to recoverable amount (higher of value in use or fair value less costs of disposal).
If impaired, write down to recoverable amount.
Reversals of impairment losses are allowed (except for goodwill).

US GAAP (ASC 360):

Similar trigger-based approach.
Uses a two-step test:
1. Assess recoverability: Compare carrying amount to undiscounted cash flows.
2. If not recoverable, impairment loss = carrying amount – fair value.
No reversal of impairment is allowed.

Derecognition and disposal are accounted for through gains or losses.

An asset is derecognized on disposal or when no future benefits are expected. The gain or loss is calculated as:

Proceeds from disposal – Carrying amount at the time of sale

This is presented in profit or loss under both IFRS and US GAAP. Any remaining revaluation surplus under IFRS may be transferred to retained earnings (not through profit or loss).

Disclosures must explain asset policies and movement details.

Both standards require detailed disclosures that support comparability and transparency.

Disclosure area	IFRS (IAS 16)	US GAAP (ASC 360)
Depreciation methods and rates	Required	Required
Revaluation details (if used)	Required (valuation method, dates, etc.)	Not applicable
Gross carrying amount and accum. depreciation	Required	Required
Reconciliation of movements	Opening balance, additions, disposals, etc.	Not always required in tabular format
Impairment losses and reversals	Disclosed separately	Disclose impairments (reversals not allowed)

Key differences between IFRS and US GAAP for PPE.

Area	IFRS (IAS 16 / IAS 36)	US GAAP (ASC 360)
Revaluation model	Permitted, with OCI effects	Not permitted
Component depreciation	Required if parts have different lives	Not required
Impairment testing	Based on recoverable amount	Two-step approach with undiscounted cash flows
Impairment reversal	Permitted (except for goodwill)	Not allowed
Disclosure detail	More granular (reconciliation, revaluation)	Less extensive

Proper PPE accounting ensures users understand asset investment, capital efficiency, and future operating capacity. Because of the long-term impact of PPE decisions on financial position and performance, consistent application and transparent disclosures are essential, especially in industries with large asset bases and regulated reporting environments.

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