If a previously downward revaluation is reversed upwards, what is the entry?

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Study for the AAT Level 4 Drafting and Interpreting Financial Statements exam. Utilize flashcards and multiple choice questions with detailed explanations and hints. Prepare to ace your exam!

Multiple Choice

If a previously downward revaluation is reversed upwards, what is the entry?

Explanation:
When a downward revaluation has previously affected the income statement (an impairment write-down), any later upward movement is treated as a reversal of that impairment. You increase the asset’s carrying amount by debiting the asset, and you recognize the gain in the profit or loss by crediting income. The reversal is limited to the amount of the prior write-down; if the rise is larger, the excess goes to the revaluation reserve in equity. So the entry is: Dr Asset; Cr Income (profit or loss).

When a downward revaluation has previously affected the income statement (an impairment write-down), any later upward movement is treated as a reversal of that impairment. You increase the asset’s carrying amount by debiting the asset, and you recognize the gain in the profit or loss by crediting income. The reversal is limited to the amount of the prior write-down; if the rise is larger, the excess goes to the revaluation reserve in equity. So the entry is: Dr Asset; Cr Income (profit or loss).

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