Question

Ostriker Company uses IFRS and has property and equipment on a historical cost basis of 3,600,000. At the end of the year, Ostriker appraises its property and equipment and determines it had a revaluation increase of 67,000. How does Ostriker record this revaluation under IFRS?

1) As a gain in the income statement
2) As a decrease in the income statement
3) As a revaluation reserve in equity
4) As a decrease in property and equipment

Answer 1

Under IFRS, a revaluation increase like the one Ostriker Company experienced is recorded as a revaluation reserve in equity, following IAS 16 standards.

Step-by-step explanation:

When the Ostriker Company, which uses IFRS, appraises its property and equipment and determines a revaluation increase of 67,000, this increase should be recorded as a revaluation reserve in equity, not through the income statement.

This is in accordance with IAS 16 - Property, Plant, and Equipment under IFRS which stipulates that increases in the carrying amount of an asset due to revaluation should be credited directly to equity under the heading of revaluation surplus. However, if this revaluation increase reverses a revaluation decrease of the same asset previously recognized in profit or loss, it should be recognized in profit or loss.