With International Financial Reporting Standards being implemented across the globe in a bid to establish worldwide financial reporting guidelines, companies in the United States are likely to run into a form of the standards – especially given the fact that Canada adopted them this year and Mexico plans to follow suit in 2012.
Under IFRS, fixed assets must be broken down into their individual components in order to undergo depreciation based on each component’s useful life – a process known as componentization. This is different from the current standard of Generally Accepted Accounting Principles, under which the asset’s total cost can be capitalized and depreciated based on the main useful life.
Additionally, companies can elect to record entire classes of assets under fair market value, provided this can be accurately measured in a timely manner.
With regard to property, plant and equipment, the following basic information is required:
- Cost of the asset
- The asset’s estimated useful life
- The residual selling value of the asset
- The pattern of benefit or usefulness derived from the asset