Yes, International Financial Reporting Standards (IFRS) allows an asset to written up to fair value. It is unusual but allowed.

If there is reason for the asset to be written up, then depreciation is taken as you outlined.

Partial impairment goes straight to accumulated depreciation.

Partial impairment

Permanet impairment is the difference between the full cost of asset and the total accumulated depreciation
as of the time of impairment.

Total and permanent impairment

How would depreciation work when assets are carried at their fair market value?
Lets’s assume I would buy a machine for $1000 in year one with an expected life of 5 years. After the first year, the asset would be valued at $800 on my balance sheet and I can deduce $200 as book depreciation from my taxable income on my income statement. (I understand that there might be a difference in my book depreciation and applicable tax depreciation, which could lead to deferred tax, but let’s assume that is not the case right now).

OK, that was US GAAP, let’s assume we switch to IFRS.
Again, I buy the same asset for $1000 and estimate an expected life of 5 years.
Nevertheless, after 1 year, the asset’s fair market value is thought of being $2000 (for whatever reason). Does that mean I can now revalue the asset down to $1600 and show $400 as depreciation expense on my income statement? That does not really make sense to me. Similarly, let’s assume the asset is only worth $100 after the first year of ownership (again, for whatever reason). This would be case for an impairment from $1000 to $100, right? – So what about depreciation?? Thanks.

I am really confused about all that!
Sorry if my question should be stupid or has an obvious answere…. I am pretty new to the accounting world.

How would depreciation work when assets are carried at their fair market value?
Lets’s assume I would buy a machine for $1000 in year one with an expected life of 5 years. After the first year, the asset would be valued at $800 on my balance sheet and I can deduce $200 as book depreciation from my taxable income on my income statement. (I understand that there might be a difference in my book depreciation and applicable tax depreciation, which could lead to deferred tax, but let’s assume that is not the case right now).

OK, that was US GAAP, let’s assume we switch to IFRS.
Again, I buy the same asset for $1000 and estimate an expected life of 5 years.
Nevertheless, after 1 year, the asset’s fair market value is thought of being $2000 (for whatever reason). Does that mean I can now revalue the asset down to $1600 and show $400 as depreciation expense on my income statement? That does not really make sense to me. Similarly, let’s assume the asset is only worth $100 after the first year of ownership (again, for whatever reason). This would be case for an impairment from $1000 to $100, right? – So what about depreciation??

I am really confused about all that!
Sorry if my question should be stupid or has an obvious answere…. I am pretty new to the accounting world.

Any explanation would be highly appreciated.
With kind regards,
Chris

There are different provisions for different assets/liabilities. See the following for each:

SFAS 159 for financial assets and liabilities: Once made, fair falue options are generally irrevocable.

IAS 40 – fair value reporting for investment property, changing from fair value to cost only permitted if change results in more appropriate presentation, which IAS 40 states is unlikely.

Property, plant and equipment under U.S. GAAP still under historical cost, and both GAAP and International Financial Reporting Standards (IFRS) require property and equipment to be initially recorded at cost, but IFRS allows the option (IAS 16) to chooose between historical cost or revaluation to fair value. Revaluation must apply to the entire class of property (not asset by asset basis) and you must also disclose the asset at historical cost.