When an asset is revalued upward and there is no prior impairment, how is the increase typically reflected?

When an asset is revalued upward and there is no prior impairment, how is the increase typically reflected?

• A. Credited to revaluation surplus in equity
• B. Recognised as a current period profit
• C. Recorded as a deduction from retained earnings
• D. Recorded as an increase in cash

Answer: (A)

When an asset is revalued upward under IAS 16, the increase in value is not treated as current profit. If there has been no prior impairment or decrease recognised in profit, the rise is added to the asset's carrying amount and credited to a revaluation surplus in equity. This creates a non-distributable reserve in the revaluation reserve while the asset's book value increases correspondingly. The effect is non-cash and does not flow through the income statement. So, the upshot is that the increase is reflected in equity as a revaluation surplus. If there had been a prior impairment or a decrease recognised in profit, part of the increase might reverse that impairment in the P&L, but that situation isn’t present here.

When an asset is revalued upward under IAS 16, the increase in value is not treated as current profit. If there has been no prior impairment or decrease recognised in profit, the rise is added to the asset's carrying amount and credited to a revaluation surplus in equity. This creates a non-distributable reserve in the revaluation reserve while the asset's book value increases correspondingly. The effect is non-cash and does not flow through the income statement.

So, the upshot is that the increase is reflected in equity as a revaluation surplus. If there had been a prior impairment or a decrease recognised in profit, part of the increase might reverse that impairment in the P&L, but that situation isn’t present here.