IFRS & Fixed Asset Depreciation: An Overview of the Requirements

IAS 16:  Property, Plant & Equipment:


One of the hottest topics in the US accounting world is the transition to IFRS, which stands for International Financial Reporting Standards.  IFRS and IAS, International Accounting Standards, provide the detail behind the conceptual framework of the International Accounting Standards Board (IASB).  To clarify, the IASB is the international version of the U.S. FASB.  In a world where everything continues to grow into a globalized state, many feel that having uniformed accounting practices is needed for fair and reliable business reporting.  Moreover, having uniformity would make for easier comparisons among global competitors, and easier reporting for multinational corporations with global subsidiaries.  Still, despite being seen as inevitable, there is both much resistance to the change and a great deal of confusion as to what is entailed.

IFRSHere at DepreciationGuru, we will attempt to help clarify the issues and make the transitions easier.  Thus, we will address several issues through a number of posts.

This first post will dive into International Accounting Standards (IAS) 16, which details regulations for Property, Plant, and Equipment.  Listed below is a brief outline of IAS 16 as put together by DepreciationGuru.  Should you want to obtain full text copy of IAS 16, please click here.

IAS 16:  Property, Plant & Equipment


  • The IASB’s Framework contains five (5) elements, which need to be satisfied before IAS 16 applies. Once satisfied, the following IAS 16 elements must be met:
  • Basic required information
    • Cost of the asset or Basis
    • Estimated useful life of the asset to the business
    • Estimated residual selling value (salvage or scrap value)
    • What is the pattern of benefit or usefulness derived from the asset
  • Recognition of Property, Plant and Equipment
    • An asset can only be recognized if:
      1. It is probable that future economic benefits will flow to the entity
      2. The cost of the asset can be measured (Measurement) reliably
      3. Measurement stages:
      4. Initial Measurement
      5. Subsequent Expenditures
      6. Measurement subsequent to initial measurement
  • Componentization
    • When an asset is made up of multiple components and these components have different useful lives. The asset should be broken down into the separate components and each component should be depreciated as a separate asset
  • Depreciation
    • The depreciation or expensing of an asset should allocate the expense the cost of the asset over its useful life
    • The depreciation method used should reflect how the economic benefits of the asset are used by the entity
  • Derecognition
    • The carrying amount of an assets is derecognized upon:
      1. The disposal of the asset; or
      2. When no future economic benefits will be recognized from the assets use or disposal

There are other IAS Statements that may also apply to assets covered by IAS 16, Property, Plant and Equipment.  These will be discussed in future posts.  Still, if there is anything that you would like to know on this issue, or any related issues, please feel free to ask.  Also, considering the conflicting view points on this topic, we would love to know whether you’re for or against the conversion and transition to IFRS.

Questions? Comments? Let us know in the comments section below.

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65 thoughts on “IFRS & Fixed Asset Depreciation: An Overview of the Requirements

  1. Hi. I have a vessel as PPE which I am selling. I singed the sale agreement on September 1 but the actual delivery of the asset to the party purchasing the vessel occured on Oct 15. Till when do I need to depreciate the vessel? Till the date as per Sale/Purchase agreement (Sept 1) or till the actual delivery date (Oct 15)?

    Thank you!

  2. dGuru

    Good day,
    We are sorry, but in order to answer your question we will need more info. What are you referring to re “LC Cost” and “Import Bill Cost”?

  3. Can i capitalize LC cost, Import Bill Cost and commisssion paid to purchase a new machine. Please advise. Tq

  4. As you explain above, IAS 16 requires Componentization of an acquired asset. So when depreciating a newly purchased building should one separate the boiler, Air conditioner, roof, lifts, etc. and other components of the building that are usually replaced during the life of the building? If so, how would one allocate purchase price to all of these components for depreciation?

    Thank you

  5. dGuru

    Hello Gloria,
    IFRS defines how various classes, such as a motor vehicle, should be depreciated, including the depreciation method and the recovery period. We suggest you refer to the IFRS rules in order to best decide how to depreciate the assets you refer to in your questions. You can start here: http://www.ifrs.org

  6. dGuru

    Hi Gloria,
    Obsolete and damaged assets: You can only use the net book valuation for these assets, regardless of what value an outside appraiser may assign to them.

    Lifts: You cannot start depreciation until the item has been placed in service. In your example, the building is not finished but the lifts are in. In this case, the depreciation of the parts of the building cannot be placed in service until the building itself is placed in service. So the lift cannot be depreciated until the building is being used for its stated purpose.

    Asset Threshold: Yes

  7. We have list of assets bought in 2006 which are damaged and obsolete (furniture and computers). Made recommendation to management to dispose of the assets but management requested that we should invite a valuer to value the assets. Please advise.

    Can one depreciate building under construction. Meanwhile, lift items have been fully paid for and deliver but has not been fixed in the building yet. Can the lift be depreciated starting from the delivery date.

    If the company threshold for capitalizing an asset is $50, if an asset like external hard drive or UPs that has a life span of more that one year are bought at the rate of $10 each, Can they be capitalized on the bases of life span.


  8. Please confirm if it is a good practice to depreciate second hand motor vehicles bought outside one’s country at the rate of 25% and the second hand vehicles bought within the country at the rate of 50%.

    Can computer used by a servicing company be depreciated by 50% as a result of technological changes.

  9. i would like to ask that our company vehicles are depreciated full in the books of accounts i mean the accumulated depreciation is equal to asset book value now what will be the accounting treatment according to IFRS.

  10. dGuru

    For Property, Plant & Equipment (PPE) the depreciation rate can be anywhere from 3 years to 40 years. It depends on the particular asset. If you let us know what assets you are referencing, we will be glad to let you know what the depreciation rate is.

  11. Good day,
    The useful life of an asset is defined under “Property, Plant & Equipment” as either the period of time over which asset is expected to be used, or the number of production or similar units expected to be obtained from an asset by an entity. In other words, a business can define the “useful life” of an asset.

  12. dGuru

    Hello Seban,
    In our opinion, and according to the CCH U.S. Master Depreciation Guide, you should use the date that the building was given its certification from a government approved regulator.

  13. dGuru

    The building is one asset that is currently being used for business and is being depreciated. When improvements are made to the building, such as a new room or a new roof, this new component of the building will have its own acquisition/service date as to when it was finished and placed in service. It must have the same depreciation method, first year convention and recovery period as the building.

  14. Our hospital have commenced its opening process. Now we are confused about the depreciation start date for our PPE assets( specifically building & related Plant & machinery and medical equipment

    Dates in consideration are
    1) Certification date from government approved regulator
    2) Date on which a particular facility was opened for employees
    3) Date on which the above said facility was opened for out patients
    4) Date on which majority of the facilities were opened for out patients.

    please advise

  15. I have a query relating to dep which i am unable to solve so thought you could help me on that.

    query goes like this-

    We have concept of writing off assets valuing less than 5000rs.

    Suppose we have a building that costs Rs 6000 and we provide SLM on that. Now we have constructed one more room in that building which costed us rs 4000. So, we add this 4000 to 6000 and treat building as rs.10000.

    IFRS has the concept of componentization ie each part of an item of property, plant, and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately.

    Now my ques is, if any indian company is applying IFRS how will they deal with this? Will they write off room cost of Rs4000 treating room and building separately as per IFRS or they will treat building and room as one as charge normal dep on Rs10000.

    Also, is concept of writing off assets less than rs5000 there in IFRS?

  16. dGuru

    Hello Eleanor,
    This rule holds true for both Federal Tax and GAAP. You make an improvement to an asset at any time during the normal recovery period. That improvement should be treated as a new asset with a current acquisition and service date and with the same method and recovery period as the asset to which the improvement was made.

  17. Hi,
    How do you treat an improvement to an existing asset? The original asset was acquired in 2011 and the additional expense in 2014. Do you add the additional cost to the original cost and depreciate over the remaining useful life of the original or what?


  18. dGuru

    Hello Max,
    Once an asset is fully depreciated, it cannot be depreciated further. Period! However, you can continue to use the asset and expense any cost associated with repairs, etc.

  19. If you had an externally built software package that is being depreciated over 5 years (say implemented and used since Oct 13), but is continually having tweaks or extra add-on’s being added to existing functionality, do you a) depreciate the add-on’s separately, even though the add-on’s are not separate software, just adding fixes or additional functionality or b) add to asset and depreciate over the existing asset period (so say additional fixes put in on Oct 14 – are they depreciated with same end date as original addition).


  20. Hi,
    We have an old server, fully depreciated and not in use anymore (but still lying around) Now 1 of our colleagues is interested to have this for his sun. My question: can my company just give it to him and book the disposal? Or should we invoice him, e.g. 1 EUR?
    Thanks in advance,

  21. What should a company do if a vehicle has fully depreciated in the books but it still has a useful life to the company for at least another 5 years (due to mileage, good care, etc.)

  22. dGuru

    Hello George,
    “Placed in Service” is a generic tern that means that the asset is ready to be used, even if it is not being used. Under federal tax laws, “Placed in service” is defined as “in a condition or state of readiness and available for a for a specially assigned function”.

  23. dGuru

    Hello prasana,
    Under US GAAP and federal tax regulations used assets can be bought and sold by a business and depreciated by the purchaser. My only question would deal with the apparent link of ownership between the two businesses and whether or not if that link violates any rules regarding the ability to depreciate the asset.

  24. Hello, I noticed in many of your previous comments that you recommend beginning depreciation when the asset is placed into service however my interpretation of IAS 16 is that Depreciation should begin when the asset is available to use even if it is not yet being used.

    Per IAS 16.55 (http://www.iasplus.com/en/standards/ias/ias16):
    “Depreciation begins when the asset is available for use and continues until the asset is derecognised, even if it is idle.”

    The asset which has not been placed in service can still be “available for use” and is “idle” as the standard states therefore I disagree with your previous replies. Do you interpret this standard differently?

  25. Hi There
    We windup one company and sold motor vehicle (that we have used 6 years and fully depreciated to a previous company) to a newly created company. This vehicle still bare a market value ( valuation is given by certified valuers) use full life is four years to new company MV is 3000 what is the depreciation implication for new company according to IFRS need to be used for SME

  26. dGuru

    Hello Rachana,
    The most widely used currency conversion rates by our customers are the “Actual Daily Rate” or the “Average Monthly Rate” at the close of an accounting.

  27. which rate is to be applied for conversion of fixed asset purchased from abroad
    a. Date of purchase
    b. Date of capitalisation
    c. date of payment
    d. Average rate of the year
    e. closing rate

  28. I would like to know whether we should depreciate the machinery when the factory is shut.and they are likely to reopen next year. whats ur suggestion?

  29. Hello Soňa,
    IFRS mentions several requirements that are necessary to calculate depreciation:

    • Cost
    • Useful life
    • Salvage Value
    • What is the pattern of benefit or usefulness derived from the asset

    Useful life: That could be five years or the production of 250,000 widgets.

    What is the pattern of benefit or usefulness derived from the asset? How is the asset used? Every day, 5 or 7 days per week? Once a month?

    Units of Production is an allowed IFRS depreciation method. For example, we have an aircraft leasing company headquartered in Europe. While an aircraft can sit idle for a period of time, its depreciation is based upon flight hours not a specific life based upon a number of years.

  30. Thank you for your answer, but what about the this part of IAS 16 paragraph 55. “Therefore, depreciation does not cease when the asset becomes idle or is retired from active use unless the asset is fully depreciated. However, under usage methods of depreciation the depreciation charge can be zero while there is no production.” ? Thank you so much.

  31. Hello,
    I would like to ask, why you can´t suspend depreciation of fixed assets? I think, if you stop using building or car, you should suspend the depreciation because you should be constist with matching principle. If the assest dont produce revenues you cant match appropriate costs. Is there some explenation, why cou cant stop depreciations? I try to understand the rules, before I apply them. Im really sory for my bad english. Thank you for answer!!!

  32. Hello Otesy,
    Generally speaking, different types of assets and their components can be handled differently. For example, an airplane is made up of various components; such as the fuselage, the landing gear, the engines, etc, where each component will have a different useful life and is expensed over that useful life.

    A building will have different components such as an elevator that may have a useful life that is shorter than the building. On the other hand, repairs to a major component of a building, such as the roof, will be expensed over the useful life of the building and will begin when the repair is placed in service.

    A different precedent can be set in different pats of the world where IFRS governs how accounting procedures are handled.

  33. I would like to know how we would treat different components of the same asset in IFRS? Would we be depreciating these components at different rates even though they would fall under the same asset class?

    Also in IFRS, if there is an improvement on an asset, would we increase the useful life of the asset based on the improvement carried out on the asset or would the asset have to depreciate within the initial useful life of the original asset?

  34. Hello Kath:
    There are two dates. The first is the acquisition date, which is the date that the asset was acquired. In many cases this could be the date of the check used to purchase the asset. The second date is the service date, which is the date that the asset is placed in service. The “In Service” date is when depreciation will begin. There is also the “First Year Convention” that needs to be considered. In the financial book, the most common conventions are “Full Month” and “Half Year”. From a practical point of view, most customers have the same acquisition and service date with the First Year Convention eliminating any depreciation difference between the Acquisition and Service date.

  35. just have a question as to when to start recognizing depreciation for fixed assets. what if the assets are already ready for their intended use however they are not yet currently being used. shall we already start recognizing depreciation or not yet?

  36. Yes. A US company can own an asset that is used primarily outside of the US. Federal tax regulations specify the method of depreciation allowed on this class of asset.

  37. Ray Ray,

    We suggest that you start depreciating the equipment when it is in “commercial stage” and it is generating sellable product.

  38. Rovshab,

    The cost to remove the old equipment and training can either be expensed or depreciated (capitalized). Your choice should be based upon the need for a current tax year deduction to reduce taxable income or to simply spread the expense over several years through depreciation.


  40. We bought a new equipment and cost incurred to remove an old equipment from the place on which the new equipment will be installed.
    Should i capitalize this cost (Dismantle cost)?
    we also bear expense for a one day training ( For new installed equipment to start)
    Should I capitalize this cost (Training cost)

  41. To the best of our knowledge, IFRS does not have specific rules dealing with inactive assets. GAAP talks about long lived assets that can be suspended (no depreciation) during a period of inactivity.

  42. In our company there are so many assets which are not utilised after the business has declined, now in a whole pool of fixed asstes in ou company we only use 50% of them. Does IFRS allow not to depreciate the unutilised assets? Please advise.

  43. This is a complex question that has both accounting and tax implications. We will assume that this is a company located in the United States. GAAP and IRS regulations have a current vs non-current asset definition that is similar to IFRS. Where a current asset is expensed and a non-current asset is depreciated. A current asset is one that is consumed or used up, sold or traded in less than one year and is expensed during the current year. Non-current assets are everything else and depreciated, not expensed.

    GAAP and IRS regulations also allow for a “de minimis expensing” rule. A company needs to have written accounting procedures that defines the company’s use of the “de minimis expensing” rule and have to be considered reasonable by outside accounting auditors and the IRS. As of January 1, 2012, the IRS has released new rules that specifically define the amount that may be expensed under the “de minimis expensing” rule.

    The second part of this question is based upon the “Service Date”. Based upon my understanding of both IRS and GAAP regulations, this asset cannot be expensed or depreciated until it is placed in service. Since the asset in question is still in its packing crate, it has not been placed in service and therefore cannot be depreciated.

  44. IFRS does not appear to address the cost of an item in its definition of a current vs non-current asset. Where a current asset is expensed and a non-current asset is depreciated. A current asset is one that is consumed or used up, sold or traded in less than one year and is expensed during the current year. Non-current assets are everything else and depreciated, not expensed.

  45. I bought 2 mobile phones 200 USD and 400 USD. Accourding the IFRS should I include directly to expense or as fixed assets with depraicetion?

  46. The answer depends on what depreciation schedule you are referring to, tax or financial book (Corporate Standards). If it is financial book you are allowed to deviate from the Corporate Standards with permission from the corporate finance department. If it is federal tax rules there are no tax deviations allowed.

  47. Based on our Corporate Standards, Asset X can be classified as Factory Equipment with standard useful life of 10 years. However, this particular asset X,is only estimated to have a 5 years useful life. Is there any guidelines that we need to consider before we decide to use 5 years UL instead of 10?

  48. If an asset has a useful life of 12 months or less, it is expensed. So, for the battery, it depends on its expected life. In regards to the inverter, which is a separate component from the generator, it would have its own in service date and its own recovery period.

    As far as the furniture is concerned, it is our opinion that the cushions are part of the furniture and should be depreciated over a 7 year furniture and fixture life.

  49. i have two question.

    1.how do we handle depreciation of a generator inverter bought separately from the generator. do we depreciate it of expense it. consider that it includes the batteries with a limited life and other things which do not have longlife??

    2. i purchased sofa seats for the office but because we wanted a specialised person to make the cushions we bought them separately. i already depreciated the seats 100% but the cushions were bought like two months after. how do i proceed with the cushions, can they be depreciated also as they are part of the furniture or they can be directly expensed??

    Many thanks

  50. Under IFRS the useful life or recovery period of an asset may be equal to or be considerably less than its technical life. Unfortunately, the determination of the useful life involves a good deal of uncertainty and subjectivity. A good example of this would be a computer. One could easily assume you will get 5 years of useful life out of it. However, some computers will last much longer and some will not last more than 2 years. So, the true answer is that the recovery period estimate is up to you. However, we encourage you to make sure that you use average case scenarios to ensure that your estimate is reasonable, fair and consistent in its application.

  51. I would like to know about depreciation period for the assets, what is minimum period to be consider for Plant, Machinery and Equipment? is it company’s management decision or minimum to be consider as per manufacturer’s life/warranty of plant.

    Please reply

  52. I would like to know whether the existing depreciation rates for the fixed asset could be changed and if possible do I need to change all the fixed assets or only selected assets only.

  53. I understand about converting cost of fixed assets form one currency to another at historical exchange rates. However, how does one convert the Accumulated Depreciation?

  54. Can you blog me the IFRS requirement with regards to fixed assets and reasoning for IFRS for the same.

    What will be the needs for the organization to be IFRS compliant and benefit that the organization get by being IFRS Compliant regarding Fixed Assets

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