Property, Plant & Equipment and

Investment Property

Property, Plant & Equipment

PP&E is initially measured at cost
This includes all directly attributable costs to
acquire and prepare the asset for its intended use.
ISA 16 states that start-up and pre-production costs
are not capitalized unless the costs are a necessary
part of bringing the asset to working condition.
Interest capitalization is similar under GAAP and
IFRS since 2009.
GAAP uses weighted avg. accumulated expenditures x
some interest rate to determine (theoretical) avoidable
interest.
IFRS capitalizes actual borrowing costs.

Asset Exchanges
Recall that under APBO 29 exchanges of
nonmonetary assets were recorded at the FV of
assets exchanged unless the assets exchanged
were similar and a gain was involved.
In those cases assets were recorded at cost and the
gain was buried in the CV of the newly acquired asset.

SFAS 153 modified APBO 29 to conform to IFRS

and eliminated that exclusion.
Now any gain or loss is recognized unless the
exchange transaction does not have commercial
substance (defined as no material difference in future
CF of the two assets.)
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Revaluation of PP&E
The benchmark treatment with IFRS is to
report PP&E at cost, net of depreciation
and any impairments.
However, an allowed alternative is to value
PP&E at fair value.
Companies can use highest and best use to
determine FV.

Revaluations of PP&E
Once an entity begins to revalue PP&E it must
continue to do so with sufficient regularity to
ensure that the carrying amount does not differ
materially from that which would be determined
using fair value at the balance sheet date.
If an item is revalued the entire class of PP&E to
which it belongs must be revalued as well.

The offsetting side of the revaluation entry will

be to revaluation surplus in other
comprehensive income and accumulated in the
equity section.
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PP&E Revaluations continued

If a revaluation is downward the revaluation
equity account is first reduced and any
excess goes to expense.
If an asset was downwardly adjusted and it
went to expense and subsequently its written
up, the increase goes to income to the extent
it was previously recognized as expense.
Any excess would go to revaluation equity.

Disclosure requirements for PP&E are more

stringent with IFRS than with GAAP.
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Depreciation
GAAP

IFRS

Component
depreciation is
permitted but not
common in practice.

Component
depreciation required
if components of an
asset have different
patterns of benefits.

Investment Property
Property held to earn rentals or for capital
appreciation are considered Investment
Properties per IFRS.
Cost or fair value can be used (FMV is the
preferred method).
With FMV method changes in value are recognized on
the income statement.
With cost method FMV must be disclosed in the notes.

For the most part if the FV method is used for

some properties it is to be used for all investment
property.
There are no corresponding FV provisions in GAAP.
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