Question

A firm follows IFRS and revalues an identifiable intangible asset. The asset had an original cost of $1 million, was written down to $800,000 two years ago and today is revalued at $1.2 million. Which of the following is correct?

Group of answer choices

A) A gain of $200,000 will be reflected on the income statement and a gain of $200,000 will flow directly into equity, bypassing the income statement

B) A gain of $400,000 will flow directly into equity, bypassing the income statement

C) A gain of $400,000 will be reflected in the income statement

D) No gain will be realized since revaluations that are increases are not allowed under IFRS

Answer 1

According to the IFRS accounting principles.

option B IS holds correct among the others. By going with the upward revaluation method followed in IFRS whatever increase in the revaluation of the assets will be added directly into the equity of the company and not in the income state.

a surplus of $4,00,000 would be added back to the equity because 2 years the loss of $2 lakhs would have already factored in the income statement and the value stood at $8 lakhs. Now the surplus of $4 lakhs would directly injected into the equity balancing the accounting equation

Assets= Liabilities + Equity

by doing like the the equity would increase but the next year the net income would decrease due to the increase in the depreciation charged on the revaluated asset.