Final answer:
When a revaluation gain reverses a previously recognized revaluation loss, it first offsets the loss in the income statement, and any excess is recognized in equity.
Step-by-step explanation:
If a revaluation gain reverses a previously recognized revaluation loss, it is recognized in profit or loss to the extent of the previous loss. Revaluation gains exceeding prior losses are recognized in other comprehensive income and affect the revaluation surplus in equity.
In accounting, when assets are revalued, any increase in value follows a specific recognition process. If there was a revaluation loss recognized in the profit or loss in earlier periods, and the fair value of the asset subsequently increases, the gain is first recognized in profit or loss to offset the previously recognized loss. This means it repairs the effect of the initial reduction in the income statement.
Once the previous loss is entirely offset, any further gain is taken directly to equity, under a revaluation surplus within other comprehensive income. This ensures that the asset is not valued above its recoverable amount, and maintains consistency with the historical cost principle.