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CFA Level I · CFA Level I Exam · Analyzing Balance Sheets

Under IFRS, a company that uses the revaluation model for a class of property, plant and equipment records a revaluation increase above the asset's carrying amount. The increase is most likely recognised in:

A revaluation increase is most likely recognised in other comprehensive income and accumulated in a revaluation surplus within equity. Only to the extent it reverses an earlier loss recognised in profit or loss would it go through profit or loss.

  1. Aprofit or loss as a gain in the current period
  2. Bother comprehensive income and accumulated in revaluation surplusCorrect
  3. Cretained earnings directly as a prior-period adjustment

Explanation

Under IFRS, a revaluation increase goes to OCI and accumulates in revaluation surplus in equity, unless it reverses a previous revaluation decrease on the same asset that was recognised in profit or loss. Taking it to profit or loss or retained earnings directly is incorrect in the general case.

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