Hi,
the CFA text book has “revaluation that decreases the carrying amount of an asset reduces net income”, then it also states " revaluation that increases the carrying amount of an asset increases depreciation", which results in lower income.are these 2 statements contradicting? if an asset’s value decreases after revaluation, then depreciation will decrease, which leads to higher income, right?
thank you.
There are two contradicting effects. An impairment (assuming there were no previous revaluation gain in OCI) goes straight to the income statement and decreases before tax profit. In the case of a positive revaluation, future income will be affected by a larger depreciation expense over the life of the asset.
in the case of a positive revaluation, does income decrease for current period? if so, can we conclude that income decrease when revaluation occurs?