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ACCA Applied Knowledge · Financial Accounting · Depreciation

Zeta Co revalues its freehold building upward for the first time under IAS 16. Where is the revaluation surplus initially recognised?

A first upward revaluation under IAS 16 is recognised in other comprehensive income and accumulated in the revaluation surplus within equity. It is not taken to profit or loss because there was no earlier revaluation loss on the same asset to reverse.

  1. AIn other comprehensive income and accumulated in a revaluation surplus within equityCorrect
  2. BIn profit or loss for the year as other income
  3. CDirectly in retained earnings through the statement of changes in equity
  4. DAs a deferred income liability in the statement of financial position

Explanation

Under IAS 16, an increase on revaluation is credited to other comprehensive income and accumulated in equity as a revaluation surplus, unless it reverses a previous decrease on the same asset that was charged to profit or loss. Taking the gain to profit or loss is wrong here because this is a first upward revaluation with no prior loss.

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