Question:
Clement Company has revalued an intangible asset with an indefinite life upward by 25 million. In its financial statements, Clement will most likely :
A)
disclose how it determined the fair value of the intangible asset.
B)
report lower net income in subsequent periods because of increased amortization expense on the asset.
C)
report higher assets, net income, and shareholders’ equity in the most recent period than it would have reported under the cost model.
Answer C
Answer explanation: For firms that revalue assets upward, IFRS requires disclosure of the date the asset was revalued, how management determined its fair value, the asset’s carrying value using the historical cost model, and (for intangible assets) whether the asset’s useful life is finite or indefinite. Although assets and shareholders’ equity will increase as a result of the revaluation, net income will not increase. The increase in the value of the asset is reported as a revaluation surplus in shareholders’ equity.
My question: What are the effects on net income of upward revaluation on an asset? I thought I read that if an asset is impaired and subsequently recovers its value, you are allowed to write up the asset to its original book value and anything above that amount is reported as revaluation surplus in shareholder equity.
Can anyone please clarify?