How to measure and present property, plant, and equipment under IFRS and US GAAP

Property, plant, and equipment (PPE) are fundamental long-term assets for most organizations, forming the backbone of operational capability and capital investment. The accounting for PPE affects reported profitability, asset values, and compliance with loan covenants. Both IFRS (IAS 16) and US GAAP (ASC 360) prescribe the recognition, measurement, and presentation requirements for PPE, but important differences exist in subsequent measurement, revaluation, impairment, and disclosure. A detailed understanding of these rules is essential for preparing financial statements that are both accurate and comparable across frameworks.

Recognition and initial measurement of property, plant, and equipment.

Both IFRS and US GAAP require that PPE is recognized as an asset when:

• It is probable that future economic benefits will flow to the entity.

• The cost of the asset can be reliably measured.

Initial measurement is at cost, which includes:

• Purchase price, including import duties and non-refundable purchase taxes, less discounts and rebates.

• Directly attributable costs to bring the asset to working condition and location (e.g., delivery, installation, professional fees).

• Costs of dismantling, removal, and site restoration (if required by law or contract).

• Borrowing costs (capitalized under IAS 23/ASC 835 when conditions are met).

Incidental revenues and costs during construction (e.g., rental income, temporary construction overhead) are accounted for based on specific guidance within each standard.

Subsequent measurement: Cost model vs revaluation model under IFRS.

IFRS (IAS 16) allows entities a choice for subsequent measurement after initial recognition:

• Cost model: Carrying amount = cost less accumulated depreciation and impairment.

• Revaluation model: Carrying amount = fair value at the date of revaluation, less subsequent depreciation and impairment.

The revaluation model can only be applied if fair value can be measured reliably and must be applied to the entire class of PPE (e.g., all land and buildings). Increases in value are credited to a revaluation surplus in equity through OCI unless reversing a previous revaluation decrease recognized in profit or loss. Decreases are first offset against any existing revaluation surplus for that asset, with any excess recognized in profit or loss.

Revaluations must be carried out with sufficient regularity to ensure the carrying amount does not differ materially from fair value at the end of the reporting period.

US GAAP requires the cost model and prohibits upward revaluation.

US GAAP (ASC 360) requires that all PPE be carried at historical cost less accumulated depreciation and impairment. Upward revaluation of PPE to fair value is not permitted under any circumstances. Revaluation surplus accounts do not exist in US GAAP reporting. Repairs, maintenance, and day-to-day servicing are expensed as incurred, while major improvements or replacements that extend useful life or increase asset value are capitalized.

US GAAP is highly prescriptive about the types of costs that may be included or excluded from capitalized cost, and places a strong emphasis on objective, verifiable evidence to support capitalization decisions.

Depreciation methods and useful lives under IFRS and US GAAP.

Depreciation reflects the allocation of an asset’s depreciable amount over its useful life.

IFRS and US GAAP both require:

• Systematic allocation over the asset’s useful life.

• Depreciation begins when the asset is available for use and ceases when classified as held for sale or derecognized.

• The depreciable amount is cost (or revalued amount under IFRS) less residual value.

Acceptable depreciation methods:

• Straight-line

• Reducing balance/diminishing value

• Units of production

Entities must review useful lives, residual values, and depreciation methods at least annually (IFRS explicitly requires annual review; US GAAP requires revision if circumstances change).

Component depreciation (allocating significant parts of an asset with different useful lives separately) is required under IFRS and permitted under US GAAP but less commonly practiced.

Impairment of property, plant, and equipment.

Both standards require entities to assess PPE for impairment if there are indicators that the asset may be impaired.

IFRS (IAS 36):

• Impairment test compares carrying amount to the recoverable amount (higher of fair value less costs of disposal and value in use).

• Losses are recognized in profit or loss.

• Impairment losses may be reversed if there is an indication that the loss has decreased.

US GAAP (ASC 360):

• Uses a two-step model: first, compare carrying amount to undiscounted expected future cash flows; if impaired, then measure loss as the excess of carrying amount over fair value.

• Impairment reversals are not permitted for assets held for use.

Presentation and disclosure requirements for property, plant, and equipment.

Both frameworks require detailed disclosures about the nature, measurement bases, depreciation methods, useful lives, and reconciliation of carrying amounts.

Disclosure requirement	IFRS (IAS 16)	US GAAP (ASC 360)
Gross carrying amount	Required for each class of PPE	Required
Accumulated depreciation	Required for each class of PPE	Required
Reconciliation of changes	Opening balance, additions, disposals, revaluations, etc.	Opening balance, additions, disposals, etc.
Depreciation method	Required for each class	Required
Useful lives/rates	Required	Required
Revaluation surplus	Required, if revaluation model is used	Not applicable
Impairment losses/reversals	Disclose and explain	Disclose only; no reversal allowed

Additional disclosures may be necessary for assets pledged as security, restrictions on title, or significant contractual commitments.

Key differences and practical considerations for global reporting.

Area	IFRS (IAS 16/IAS 36)	US GAAP (ASC 360)
Subsequent measurement	Cost or revaluation model	Cost model only
Upward revaluation	Permitted (OCI)	Prohibited
Component depreciation	Required	Permitted, rare
Impairment reversals	Permitted	Prohibited
Disclosure detail	More granular, equity impacts shown	Less granular, equity impacts not shown
Asset classes	Defined and disclosed	Defined, fewer revaluation nuances

Entities operating internationally or reporting under both standards must ensure compliance with the more detailed and flexible IFRS rules, while maintaining strict cost-based reporting for US GAAP purposes. Careful policy selection and thorough documentation are critical for accurate, comparable PPE reporting and effective communication with users of financial statements.

____________

FOLLOW US FOR MORE.

DATA STUDIOS

datastudios.org