Question

An initial revaluation increment must be credited directly to the income statement.

Select one:
A. True
B. False

Answer 1

The concept that an initial revaluation increment must be credited to the income statement is false; such increments are instead credited to equity as revaluation surplus according to IAS 16.

Step-by-step explanation:

The statement that an initial revaluation increment must be credited directly to the income statement is false. According to International Accounting Standards (IAS 16), if an asset's fair value increases as a result of a revaluation, the increase should be credited directly to other comprehensive income and accumulated in equity under revaluation surplus, not in the income statement, unless it reverses a revaluation decrease of the same asset previously recognized in the income statement.

Answer 2

The given statemet "An initial revaluation increment must be credited directly to the income statement" is false. Thus the correct option is B. False.

Step-by-step explanation:

The statement "An initial revaluation increment must be credited directly to the income statement" is false. When there's a revaluation increment (an increase in the value of an asset), it's recognized within the equity section of the balance sheet, specifically in the revaluation surplus or revaluation reserve account, not directly in the income statement. The revaluation surplus account is part of other comprehensive income and affects the equity portion, not the income statement.

Revaluation of assets is a process where assets like property, plant, or equipment are reassessed and adjusted to their fair market value. The initial increase in value from revaluation is not reported in the income statement but rather reflected in the balance sheet's equity section. This approach aims to show the most accurate value of assets over time but doesn't affect the net income directly.

However, subsequent changes in the revaluation surplus might impact the income statement. When the revalued asset is disposed of or derecognized, any gain or loss arising from that disposal is recognized in the income statement. So, while the revaluation increment itself is not directly credited to the income statement, its effects can be reflected indirectly upon subsequent disposal or impairment of the revalued asset.

Thus the correct option is B. False.