The predominant standard that defines the accounting and reporting for Property, Plant, and Equipment (PP&E) is IAS 16. US GAAP guidance for PP&E was formed from several standards issued over many years until they were combined in the Codification. However, except for the areas of software, oil and gas, and mining assets, IFRS and US GAAP use nearly identical criteria for capitalization. Impairment of PP&E is covered later in the book.
PP&E are assets with physical form that an entity uses to make a profit. An example is a metal-forming machine in a plant that produces automobiles. Internally developed software can qualify for capitalization (as well as purchased software). Under IFRS, software is reported under the intangible assets category. Under US GAAP, software is not presented as intangible.
PP&E is recognized at historical costs, with an exception for agricultural assets under IFRS. Costs of PP&E include all materials, labor, permits, and other costs directly attributed to bringing the asset into a condition where it is ready to be used. PP&E does not need to directly contribute profit, but can be used to support or enable profit-making activities to be carried out. Examples include office buildings, furniture, and computers.
PP&E costs can also include certain borrowing costs, such as interest and discount or premium amortization. Capitalization of borrowing costs is covered later in this chapter. Costs that are not includable include costs ...