Answer: lower financial leverage ratio.

## Explanation When an asset is revalued upward under the revaluation model: 1. **Balance Sheet Impact**: - The carrying value of the asset increases - Shareholders' equity increases (through revaluation surplus in equity) - Total assets increase 2. **Financial Leverage Ratio**: - Financial leverage ratio = Total debt / Total equity - When equity increases due to revaluation surplus, the denominator (equity) increases - This results in a **lower financial leverage ratio** 3. **Why not the other options**: - **A. Higher net profit margin**: Revaluation gains typically go to equity (revaluation surplus) rather than the income statement, so they don't affect net profit margin directly - **C. Higher total asset turnover**: Total asset turnover = Revenue / Total assets. When assets increase due to revaluation, the denominator increases, which would actually **decrease** total asset turnover ratio, not increase it **Key Concept**: Under IFRS, revaluation gains are recognized in other comprehensive income and accumulated in equity as revaluation surplus, not in profit or loss (unless reversing previous revaluation losses). This increases equity without affecting net income, thereby reducing leverage ratios.

Author: LeetQuiz .