Depreciation and Impairment of Property, Plant and Equipment
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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.