gaap ii_-_property,_plant_and_equipment

gaap ii_-_property,_plant_and_equipment - Pr oper ty, Plant...

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Property, Plant and Equipment Property, Plant, and Equipment US GAAP and IFRS define property, plant, and equipment similarly. Both standards require the assets to be tangible, long-term in nature, and acquired for specific uses within the entity. US GAAP and IFRS do not include assets that are held for sale in the category of property, plant, and equipment. Initial Recognition of PPE US GAAP and IFRS recognize PPE if future economic benefits attributable to the asset are probable and it is possible to reliably measure the cost of the asset. Both standards initially measure property, plant, and equipment at cost. The cost to acquire the asset includes all costs incurred to bring the asset to the location and condition for its intended use. Both standards include the cost of dismantling and removing the asset and restoring the site. Both standards prohibit entities from capitalizing start-up costs, general administrative and overhead costs, or regular maintenance. IAS 23 Borrowing Costs considers exchange rate differences from foreign currency borrowings an eligible borrowing cost. IFRS allows entities to offset borrowing costs by investment income earned on those borrowings. Under IFRS, the actual borrowing costs are capitalized. US GAAP does not include exchange rate differences in borrowing costs and they generally do not allow interest earned on borrowings to be offset against interest costs incurred during the period. Under US GAAP, the amount of interest to capitalize is limited to the lower of actual interest cost incurred during the period or avoidable interest. Through 2008, IAS 23 provides two methods to account for interest cost. According to the benchmark treatment, an entity should expense all borrowing costs in the period incurred. Under the allowed alternative treatment an entity may capitalize borrowing costs that are related to the acquisition, construction, or production of a qualifying asset. The benchmark treatment under IFRS is a departure from US GAAP. The allowed alternative approach is similar to the US GAAP approach to capitalizing interest. Entities must consistently apply the method chosen to all qualifying assets. IAS 23 is currently being revised. With the adoption of the revised standard in 2009, entities will be required to capitalize borrowing costs related to the acquisition, construction or production of a qualifying asset. US GAAP requires entities to capitalize interest costs incurred only during construction as
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gaap ii_-_property,_plant_and_equipment - Pr oper ty, Plant...

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