Accounting of Property, Plant, and Equipment (PP&E)

PP&E are tangible assets that are used in the production or supply of goods or services, held for rental purposes, or for administrative purposes. PP&E are typically long-lived assets, with a useful life of more than one year.

Accounting Treatment of PP&E

The accounting treatment of PP&E under IFRS, US GAAP, and IND AS is similar, but there are some key differences. Here is a summary of the key differences:

Measurement of Initial Cost

• IFRS: The initial cost of PP&E under IFRS includes the purchase price, any directly attributable costs, and borrowing costs that are capitalized as per the IAS 23 standard.
• US GAAP: The initial cost of PP&E under US GAAP is similar to IFRS, but it does not allow the capitalization of borrowing costs related to the acquisition or construction of PP&E.
• IND AS: The initial cost of PP&E under IND AS is generally aligned with IFRS.

Subsequent Costs

• IFRS: IFRS allows two approaches for subsequent costs. The cost model involves recognizing subsequent costs as an asset only when it is probable that future economic benefits will flow to the entity. The revaluation model allows for the upward revaluation of PP&E to fair value, but any subsequent costs are expensed unless they meet the recognition criteria for an asset.
• US GAAP: Under US GAAP, subsequent costs are capitalized only if they extend the useful life or enhance the capacity or efficiency of the asset. Otherwise, such costs are expensed as incurred.
• IND AS: IND AS is generally aligned with IFRS regarding the treatment of subsequent costs.

Depreciation Method

• IFRS: IFRS allows the use of either the cost model or the revaluation model for the measurement of PP&E. If the cost model is used, depreciation is recognized systematically over the asset's estimated useful life using a method that reflects the pattern of consumption of economic benefits.
• US GAAP: US GAAP requires the use of the cost model for measuring PP&E. Depreciation is generally recognized using a systematic and rational method that reflects the pattern in which the asset's economic benefits are consumed.
• IND AS: IND AS is generally aligned with IFRS in terms of the depreciation method for PP&E.

Revaluation

• IFRS: IFRS allows entities to choose the revaluation model, where PP&E can be revalued to fair value, but only if there is an active market for the asset. Revaluation gains or losses are recognized in other comprehensive income or accumulated in equity.
• US GAAP: US GAAP does not permit the revaluation model. PP&E is generally reported at historical cost less accumulated depreciation.
• IND AS: IND AS is generally aligned with IFRS and allows for the revaluation model.

Conclusion

The accounting treatment of PP&E under IFRS, US GAAP, and IND AS is similar, but there are some key differences. It is important to be aware of these differences when preparing financial statements.