A revaluation upward typically affects which financial statement component?

A revaluation upward typically affects which financial statement component?

• A. Equity through a revaluation surplus
• B. Profit or loss
• C. Cash and cash equivalents
• D. Debt covenants

Answer: (A)

When an asset is revalued upward under the revaluation model, the increase is reflected by raising the asset's carrying amount and recognizing a corresponding gain in equity as a revaluation surplus. This preserves the rule that such increases are not booked to profit or loss, unless they reverse a prior decrease that was previously charged to P&L. Because this is a non-cash adjustment, cash and cash equivalents stay unchanged. Debt covenants aren’t directly affected by the revaluation entry, though the change in the reported asset base and equity could influence covenant calculations in some cases.

When an asset is revalued upward under the revaluation model, the increase is reflected by raising the asset's carrying amount and recognizing a corresponding gain in equity as a revaluation surplus. This preserves the rule that such increases are not booked to profit or loss, unless they reverse a prior decrease that was previously charged to P&L. Because this is a non-cash adjustment, cash and cash equivalents stay unchanged. Debt covenants aren’t directly affected by the revaluation entry, though the change in the reported asset base and equity could influence covenant calculations in some cases.