A company revalues land from a carrying amount of £120,000 to £150,000 under IAS 16. How is the £30,000 increase accounted for?

Answer and explanation

Correct answer: D. Credited to a revaluation surplus within equity through other comprehensive income

  1. Step 1: Under the IAS 16 revaluation model, a revaluation increase is credited to other comprehensive income and accumulated in a revaluation surplus in equity.
  2. Step 2: Debit land £30,000; credit revaluation surplus £30,000.
  3. Step 3: It reaches profit or loss only in limited cases, such as reversing an earlier decrease that was charged there.
Answer
Credited to a revaluation surplus within equity through other comprehensive income.
Why not the others: An increase on revaluation is not profit; it is recognised in other comprehensive income and credited to the revaluation surplus. IAS 16 requires a revaluation surplus, not a direct credit to retained earnings. Land is not depreciated, but IAS 16 permits the revaluation model, under which carrying amount is updated.

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