Final answer:
The revaluation method used by IFRS allows for the remeasurement of certain assets to fair value. This increase in value is recorded as part of a revaluation surplus account, bypassing the income statement and not affecting net income. Whether or not this method is appropriate depends on the nature of the assets being revalued and the reporting objectives.
Step-by-step explanation:
The revaluation method used by IFRS allows for the remeasurement of certain assets to fair value. This increase in value is recorded as part of a revaluation surplus account, bypassing the income statement and not affecting net income. Whether or not this method is appropriate depends on the nature of the assets being revalued and the reporting objectives.
Investment properties often experience fluctuations in value due to market conditions, and it is reasonable to record these changes separately from net income. This is because investment properties are held primarily for generating rental income or for capital appreciation, and their fair value reflects their potential future cash flows. On the other hand, property, plant, and equipment (PP&E) are used in the operations of a business and their fair value changes may not be indicative of an increase in future economic benefits. Therefore, it is more appropriate to include changes in PP&E value in the income statement.
In summary, the appropriateness of the revaluation method depends on the specific circumstances and objectives of reporting. Investment properties are commonly revalued due to their nature and purpose, while changes in the value of PP&E are typically recognized in the income statement.