Explanation

When a company performs an upward revaluation of an asset under the revaluation model:

1. Asset value increases: The carrying amount of the asset on the balance sheet increases
2. Total assets increase: This increases the denominator in the debt-to-assets ratio
3. Debt remains unchanged: The numerator (total debt) stays the same since this is just an accounting revaluation, not a financing transaction
4. Ratio calculation: Debt-to-assets ratio = Total Debt / Total Assets

Since the denominator (Total Assets) increases while the numerator (Total Debt) remains constant, the ratio decreases.

Mathematically:

• Original ratio: D/A
• After revaluation: D/(A + ΔA) where ΔA > 0
• Therefore: D/(A + ΔA) < D/A

This is a fundamental concept in financial statement analysis where accounting policy choices can affect financial ratios without changing the underlying economic reality.