• Global Frameworks: IAS 16 (Property, Plant, and Equipment), IAS 38 (Intangible Assets), US GAAP ASC 350 / 360.

1. Valuation Models for Long-Lived Assets
  • The Cost Model (IFRS & US GAAP): Assets are carried at historical cost less accumulated depreciation and cumulative impairment losses.
  • The Revaluation Model (IFRS Only): Assets may be carried at fair value at the revaluation date less subsequent depreciation. Upward adjustments bypass the income statement and are credited to Other Comprehensive Income (OCI) under a specific “Revaluation Surplus” equity account, unless reversing a prior period write-down.

2. Impairment Testing Mechanics
When indicators show that an asset’s carrying value may not be recoverable, a formal impairment test is required:
  • IFRS Protocol (IAS 36): An asset is impaired if its carrying amount exceeds its Recoverable Amount. The recoverable amount is defined as the higher of:
    1. Fair value less costs of disposal
    2. Value in use (discounted expected future cash flows)

    The impairment loss equals the carrying amount minus the recoverable amount.

  • US GAAP Protocol (ASC 360): Uses a 2-step approach:
    • Step 1 (Recoverability Test): Check if the total undiscounted future cash flows from the asset are less than its carrying amount. If yes, the asset is impaired.
    • Step 2 (Loss Measurement): Calculate the impairment loss as the excess of the asset’s carrying amount over its fair value.

3. Leases: IFRS 16 and ASC 842 Implementation
The old practice of using off-balance-sheet operating leases to conceal corporate leverage is no longer permitted. Both frameworks require lessees to recognize a Right-of-Use (ROU) Asset and a corresponding Lease Liability on the balance sheet for all leases longer than 12 months.
                      [Lease Agreement > 12 Months]
                                    │
                                    ▼
       ┌────────────────────────────┴────────────────────────────┐
       ▼                                                         ▼
[Balance Sheet Asset]                                  [Balance Sheet Liability]
Right-of-Use (ROU) Asset                               Lease Obligation
(Present Value of Lease Payments)                      (Present Value of Lease Payments
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