In relation to a revaluation surplus, an entity:
A) cannot use this surplus for the payment of future dividends.
B) can transfer this surplus to retained earnings when the asset is derecognised or used.
C) cannot transfer this surplus to any other reserve account.
D) can transfer the surplus to the current period profit or loss when the asset is disposed of.

Question

Quizplus · Accepted Answer

A revaluation surplus is an amount that arises when a company revalues a fixed asset to fair value. This surplus is not distributable as dividend and cannot be transferred to other reserve accounts. However, it can be transferred to retained earnings when the asset is derecognized, sold or used. Therefore, choice B is correct. Choice A and C are incorrect as they suggest that the surplus cannot be transferred to retained earnings, which is not true. Choice D is incorrect as the surplus cannot be transferred to the current period profit or loss, but rather to retained earnings.

In Relation to a Revaluation Surplus, an Entity