Q13 R18 Revaluation

Alpha revalued a manufacturing plant; this increased its reported carrying amount by 15 percent. There was no previsous downward revaluation of the plant…Jordan responds, “Alpha’s revaluation increased its debt to capital and return on assets ratios, and reduces its return on equity.”

Jordan’s response about the effect of Alpha’s revaluation is most likely correct with respect to the impact on its:

A. return on equity.

B. return on assets.

C. debt to capital ratio.

OA is A. But I doubt none of the choices is correct. There are shoud be no need of asset value reverse on Alpha because “no previous downward revaluation of the plant”…Open for discussion, thanks!

Answer A and B are both correct…not ready for this yet…

Upward revaluation than the carrying value is reported in equity not as part of NI which makes the equity to increase and return to remain the same thus decreasing ROE. ROA will also decrease as upward revaluation increases assets. Debt to Capital will also decrease as Capital will increase due to equity and debt will remain the same.