1.6 Property, Plant, and Equipment

The table below shows the differences that exist between IFRS Accounting Standards and U.S. GAAP in several key areas of property, plant, and equipment (PP&E), including (1) borrowing costs that can be included in the cost of the PP&E, (2) revaluation, and (3) component depreciation.

Topic	IFRS Accounting Standards (IAS 16, IAS 23, IAS 40)	U.S. GAAP (ASC 360, ASC 835-20)
Borrowing costs — length of time	An entity must capitalize interest if the time to get assets ready for their intended use or sale is substantial (interpreted to mean at least one year).	An entity must capitalize interest costs while a qualifying asset is being prepared for its intended use, regardless of the length of time needed to get the asset ready.
Borrowing costs — qualifying assets	Qualifying assets exclude equity method investments. Borrowing costs for the funding of construction activities in equity-accounted vehicles cannot be capitalized because investments in associates are financial assets.	Qualifying assets under U.S. GAAP include: Assets that are constructed or produced for an entity’s own use. Assets intended for sale or lease that are constructed or produced as discrete projects (e.g., a building or a ship). Investments accounted for under the equity method while the investee has activities in progress necessary to commence its planned principal operations, provided that the investee’s activities include the use of funds to acquire qualifying assets for its operations.
Borrowing costs — acquisition	Borrowing costs that are directly attributable to the acquisition, construction, or production of a qualifying asset are included in the cost of that asset. Such borrowing costs are capitalized as part of the cost of the asset when it is probable that they will result in future economic benefits to the entity and the costs can be measured reliably. Borrowing costs include: Interest expense calculated by using the effective interest method. Finance charges related to finance leases. Exchange differences arising from foreign currency borrowings when they are regarded as an adjustment to interest costs. IAS 23 states that “[a]n entity shall recognise other borrowing costs as an expense in the period in which it incurs them.”	The amount of interest cost to be capitalized for qualifying assets is intended to be that portion of the interest cost incurred during the assets’ acquisition periods that theoretically could have been avoided if expenditures for the assets had not been made.
Subsequent measurement — revaluation	PP&E and investment properties may be revalued to fair value if fair value can be measured reliably. For PP&E, changes are recognized directly in equity and are required for all assets in the same class. For investment properties, revaluation changes are recognized in the income statement.	Properties are carried at their historical costs, and revaluation is not permitted.
Component depreciation	An item of PP&E that consists of several components that have different useful lives (or patterns of consumption if applicable) must be depreciated separately. Investment property that is subject to revaluation through profit and loss does not need to be broken down into components or separately depreciated. Composite depreciation is not an acceptable method for depreciation.	Component depreciation is not required but is considered acceptable. Using a higher-level unit of account is acceptable, including using composite depreciation, which is common in certain industries, such as utilities and railroads. Under the composite approach, no gain or loss is generally recognized at the time of disposal or retirement of an item of PP&E; instead, the net book value is offset against accumulated depreciation. Generally, depreciation of an asset that consists of several components is calculated by using one blended depreciation rate.