Balancing the accounting equation under the revaluation model

CFA Level I FRA
#1

Under the revaluation model, if the fair value is determined to be less than the carrying value as of the revaluation date:

  1. A loss is recorded in the income statement

  2. The value of the asset in question is reduced by (Carrying value - Fair value).

How do we balance the accounting equation? Isn’t a component of either liabilities or equity reduced, or another component of assets increased?

I was reading an example for this. Suppose on first revaluation date, a revaluation loss of $1 million is recorded. On the second revaluation date, the fair value is determined to be $1.5 mil above the carrying value. Correspondingly, the value of the asset in question is increased by $1.5 mil, a $1 mil gain is recorded on the income statement (to reverse the previous $1 mil loss) and a $0.5 mil increase is recorded in the revaluation surplus account (increase in equity).

Again, there’s a $1.5 mil increase in assets side, but only a $0.5 mil increase in liabilities+equity side. How do we balance the acc equation?

Thanks

#2

The Net Result each period from the Statement of Profit and Loss and Other Comprehensive Income is closed against the Retained Earnings line in the Statement of Financial Position. So basically, in your example, you will have 1.5 increase in the asset vs 1 million increase in Retained Earnings and 0.5 increase in the Revaluation Surplus.