Chartered Financial Analyst Level 1

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Explanation:

Under the revaluation model (IFRS) for property, plant, and equipment:

Initial revaluation (Year 1):
- Original cost: $12 million
- Fair value at initial revaluation: $17 million
- Revaluation surplus: $5 million ($17 - $12)
- This $5 million gain is recognized in other comprehensive income (OCI) and accumulated in equity under revaluation surplus.
Second revaluation (Year 2):
- Carrying value after initial revaluation: $17 million
- Fair value at second revaluation: $12 million
- Decrease in value: $5 million ($17 - $12)

Treatment of the $5 million decrease:

First, the decrease is applied to reverse any previous revaluation surplus related to the same asset.
In this case, there was a $5 million revaluation surplus from Year 1.
The entire $5 million decrease can be offset against the $5 million revaluation surplus.
Therefore, the $5 million is recognized in other comprehensive income (to reverse the previous OCI gain), not on the income statement.

Key accounting principle:

When a revaluation decrease occurs, it is first recognized in OCI to the extent of any previous revaluation surplus for that asset.
Only if the decrease exceeds the previous revaluation surplus would the excess be recognized as an expense on the income statement.

Conclusion: The $5 million loss is recognized in other comprehensive income, not on the income statement.

Correct answer: B

Explanation:

Under the revaluation model (IFRS) for property, plant, and equipment:

Initial revaluation (Year 1):
- Original cost: $12 million
- Fair value at initial revaluation: $17 million
- Revaluation surplus: $5 million ($17 - $12)
- This $5 million gain is recognized in other comprehensive income (OCI) and accumulated in equity under revaluation surplus.
Second revaluation (Year 2):
- Carrying value after initial revaluation: $17 million
- Fair value at second revaluation: $12 million
- Decrease in value: $5 million ($17 - $12)

Treatment of the $5 million decrease:

First, the decrease is applied to reverse any previous revaluation surplus related to the same asset.
In this case, there was a $5 million revaluation surplus from Year 1.
The entire $5 million decrease can be offset against the $5 million revaluation surplus.
Therefore, the $5 million is recognized in other comprehensive income (to reverse the previous OCI gain), not on the income statement.

Key accounting principle:

When a revaluation decrease occurs, it is first recognized in OCI to the extent of any previous revaluation surplus for that asset.
Only if the decrease exceeds the previous revaluation surplus would the excess be recognized as an expense on the income statement.

Conclusion: The $5 million loss is recognized in other comprehensive income, not on the income statement.

Correct answer: B

Comments (1)

Ahamed NuzhanApr 21, 2026 11:43 AM

Answer is B according to explanation. But A is ticked (green) as correct.

LeetQuiz .Apr 24, 2026 4:51 AM

Hi Ahamed, Thanks for your feedback. The answer is B. Sorry for marking the wrong answer. I've corrected now. B is Correct because if a revaluation initially increases the carrying amount of the asset class, the increase in the carrying amount of the asset class bypasses the income statement and goes directly to equity under the heading of revaluation surplus. Any subsequent decrease in the asset's value first decreases the revaluation surplus and then goes to income. Under IFRS, other comprehensive income includes certain changes in the value of long-lived assets that are measured using the revaluation model rather than the cost model. After initial revaluation, the revaluation surplus is thus 17 - 12 = 5. The second revaluation decreases the revaluation surplus by 5.

Comments (1)

Ahamed NuzhanApr 21, 2026 11:43 AM

Answer is B according to explanation. But A is ticked (green) as correct.

LeetQuiz .Apr 24, 2026 4:51 AM

An analyst gathers the following information (in $ millions) about a company's land reported under the revaluation model:

Original cost 12
Fair market value at initial revaluation on 31 December Year 1 17
Fair market value at second revaluation on 31 December Year 2 12

As a result of the second revaluation, the company recognizes in Year 2:

Original cost	12
Fair market value at initial revaluation on 31 December Year 1	17
Fair market value at second revaluation on 31 December Year 2	12

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Last updated: April 24, 2026 at 04:49

a $5 million loss on the income statement.

23.8%

a $5 million loss in other comprehensive income.

47.6%

neither a loss on the income statement nor a loss in other comprehensive income.

28.6%