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Depreciation and Impairment of Property, Plant and Equipment

Posted on August 10, 2016 10:00 am;

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By Rebecca Langdon


In this article we are going to take a look at depreciation and impairment of property, plant and

equipment under IFRS. Specifically, we are interested in how assets are recognized and accounted

for. Property, plant and equipment (PPE) are tangible assets held by an entity for their own use or

for rental to others. They are also expected to be held by the entity for more than one period.


Depreciation under IFRS

The depreciable amount should be allocated on a systematic basis throughout the useful life of the

PPE asset. The useful life of an asset and the residual value should be reviewed periodically. Where

the result of the review differs from the estimate, the change should be accounted for under IAS 8.


Depreciation starts from when the asset is enabled for the use intended by the company.


Depreciation will cease at the earlier of its derecognition or it being reclassified as being held for

sale. Derecognition refers to the asset being sold or scrapped. In the event of the PPE asset being

temporarily idle, that does not result in depreciation ceasing, as it is recognized that the asset may

hold future economic benefit for the organization.


Impairment under IFRS

Just a quick recap then on what an impairment is; it is an amount by which the carrying amount of

the PPE asset exceeds its recoverable amount. The carrying amount is the recognised value of the

asset on the balance sheet after accumulated depreciation and accumulated impairment losses are

recognised. Impairment is accounted for according to the principles set out in IAS 36. IAS 36 seeks to

ensure that an entity’s assets are not carried at more than the recoverable value. Under IAS 36

companies are required to carry out impairment tests where there is any indication of an impaired



We hope thishas served as a useful recap for those of you that are studying already, and for those of

you who may be interested in a certified finance or accounting qualification, we would welcome you

to take a look at the DipIFR and CPA course outlines.

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