Use the following information to solve the following questions:
Tunisia Inc. owns assets to which it applies the revaluation model (asset-adjustment method). The following additional information is available:
1. Accumulated Depreciation at December 31, 2021, (prior to any fair value adjustments) was $ 12,000.
2. Between December 31, 2020, and December 31, 2021, the property's fair value had increased by $ 30,000.
3. The December 31, 2021, balance in the revaluation surplus account (prior to any fair value adjustments) was $ 2,000.
-The adjusted December 31, 2021, balance in the related contra-asset account will be
A) $ 0.
B) $ 10,000.
C) $ 12,000.
D) $ 14,000.

Question

Quizplus · Accepted Answer

When applying the revaluation model under IFRS, if an asset's fair value increases, the increase is first applied to reverse any previous revaluation decreases recognized in profit or loss. If there are no such decreases or the increase exceeds them, the excess is recognized in other comprehensive income and accumulated in equity under revaluation surplus. Since the fair value of the property increased by $30,000 and there was already a revaluation surplus of $2,000, the entire accumulated depreciation of $12,000 would be eliminated (reversed), and the contra-asset account would be adjusted to $0. The remaining increase in fair value would further adjust the revaluation surplus.

Use the Following Information to Solve the Following Questions