Fixed assets under international financial accounting standards (IFRS) include an item a company controls and will use for economic benefit in the future. IFRS fixed asset accounting is similar to other national accounting methods, such as generally accepted accounting principles (GAAP) in the United States. The different procedures for IFRS fixed asset accounting include the selection of the cost or revaluation method, estimate of the useful life for the asset and residual value, and the selection of a depreciation impairment method. Companies that operate in international markets most likely need to use IFRS as their bases for accounting principles. Other country-specific rules may apply in some cases.
The cost method for IFRS fixed asset accounting means a company uses the asset’s historical cost as the cost basis for balance sheet valuation. The other option is the revaluation cost method, which allows a company to use current market values for an asset’s cost basis. Under the latter condition, a company may need to periodically revalue the asset’s value during its use. The revaluation process allows a company to have the most accurate balance sheet possible as fixed assets indicate the replacement value rather than the historical value. Certain rules may apply where a company must choose the revaluation method.
IFRS fixed asset accounting also requires a company to estimate both the useful life and residual value of these items. The useful life is the expected number of years a company believes it will use the asset. In some cases, IFRS may prepare classifications for fixed assets, where the items in each group have predetermined numbers of useful years. The residual value for an IFRS fixed asset is the value of the item at the end of the asset’s useful life. This value typically has no set group value as current market conditions most likely determine this value.
Depreciation is the accounting process where a company posts an expense on its income statement to represent the use of an IFRS fixed asset. Many different depreciation methods are available for use under IFRS fixed asset accounting procedures, though a company must select only one for each fixed asset in use. Certain asset classes may have one depreciation method that works better than others for these items. A company most likely needs to make a disclosure to outside groups in order to inform stakeholders on this accounting procedure. Almost all fixed assets need a depreciation method in order to properly account for the asset.