ASC 830-10-45-18 states that PP&E are nonmonetary assets. Therefore, when an entity maintains its books and records in a foreign currency, PP&E must be remeasured in the functional currency at the historical exchange rate (i.e., the rate that was in effect when the PP&E was purchased). Further, upon a triggering event, entities must perform a two-step test under ASC 360-10 to determine whether PP&E is impaired:
Step 1 — Compare the carrying amount of the PP&E with the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group).
Step 2 — If the carrying value of the PP&E exceeds the undiscounted cash flows determined in step 1, compare the carrying value of the PP&E with its fair value. If the carrying value exceeds the fair value, an impairment loss is recognized for the difference.
As with the accounting for inventory discussed in Section 4.9, an entity must test PP&E for impairment in its functional currency. Therefore, when an entity maintains its books and records in a foreign currency, a devaluation of the foreign currency against the functional currency could cause an entity to fail step 1 of the impairment test. This is because PP&E constitute nonmonetary assets that must be remeasured at the historical exchange rate, while the undiscounted cash flows are measured at the exchange rate that is in effect when the impairment test is performed. As with inventory, an impairment of PP&E in the functional currency may result even though the entity is not required to report an impairment in the books and records maintained in the foreign currency. The example below illustrates this concept.