Property, Plant, Equipment, Intangibles, and Impairment
What this domain tests
This domain tests initial and subsequent measurement of PP&E, depreciation, asset retirement obligations, internally generated and purchased intangibles, goodwill, and impairment under ASC 360, ASC 350, ASC 730, IAS 16, and IAS 36.
PP&E
Cost includes the purchase price, directly attributable costs, and estimated dismantling and restoration costs recognized as an asset retirement obligation. Interest is capitalized on qualifying assets during construction. Depreciation methods include straight-line, units of production, and declining balance; depreciate cost less residual value over the useful life. Land is not depreciated. Repairs maintain the asset, while improvements that extend life or capacity are capitalized. Changes in depreciation estimates are applied prospectively. US GAAP uses the cost model; IFRS also permits the revaluation model.
Intangibles and goodwill
Purchased identifiable intangibles are recognized at cost. Internally generated research is expensed; development may be capitalized under IFRS if technical feasibility and other criteria are met. US GAAP generally expenses R&D, except software costs capitalized after technological feasibility. Finite-life intangibles are amortized; indefinite-lived intangibles are not amortized but tested for impairment. Goodwill is not amortized and is tested annually or when a triggering event occurs.
Impairment
For held-and-used PP&E, US GAAP first applies a recoverability test using undiscounted future cash flows. If the carrying amount exceeds that sum, the asset is written down to fair value. IFRS uses a one-step test: recoverable amount is the higher of fair value less costs of disposal and value in use. Goodwill impairment is not reversed under either framework; IFRS permits reversal of impairment for PP&E and intangibles, while US GAAP does not.
Worked example
Equipment has a carrying amount of $500,000, undiscounted cash flows of $450,000, fair value of $380,000, and value in use of $420,000. Under US GAAP, the carrying amount exceeds undiscounted cash flows, so impairment is measured at $380,000, a $120,000 loss. Under IFRS, recoverable amount is $420,000, so the loss is $80,000.
Traps
Using discounted cash flows in the US GAAP recoverability test; reversing goodwill impairment; capitalizing research; depreciating land; ignoring an ARO; and choosing fair value when value in use is higher under IFRS.