Cost model

Under this model, PP&E (other than land) is reported at amortised cost.

Amortised cost = Historical cost – Accumulated depreciation

Impairment (IFRS): If an asset’s carrying value exceeds the recoverable amount, the asset is written down to its recoverable amount.

Impairment (US GAAP): Determining an impairment and calculating the loss involves two steps. 

Firstly, the asset is tested for impairment by applying a recoverability test. An asset is considered impaired if the carrying value  is greater than the asset’s future undiscounted cash flow stream.

If the asset is impaired, the asset’s value is written down to fair value on the balance sheet. The loss is recognised in the income statement.  If the fair value is not known, the asset is written down to the discounted value of its future cash flows.

Compare: Revaluation model

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