Under the revaluation standard, upward valuations of assets are allocated directly to a reserve (equity) account and do not increase profit, while downward revaluations are treated as an expense and reduce profit. The accounting principle underpinning this treatment is:
A) accounting entity.
B) prudence (conservatism).
C) going concern.
D) materialism.

Question

Quizplus · Accepted Answer

The accounting principle underpinning this treatment is prudence (conservatism), which requires that losses or potential losses be recognized as soon as possible, while gains should only be recognized when realized. This principle aims to ensure that financial statements are not overstated, which could mislead users of financial information. By treating upward revaluations as a reserve and downward revaluations as expenses, the revaluation standard adheres to the principle of prudence.

Under the Revaluation Standard, Upward Valuations of Assets Are Allocated