Acca financial Accounting (FA) Study Text ac ca (FA)

'If an asset’s carrying amount is increased as a result of a 

revaluation, the increase shall be recognised in other comprehensive 

income and accumulated in equity under the heading of revaluation 

surplus'

 (IAS 16, para 39). This will be covered later in the text. 

This gain is not recorded in the statement of profit or loss because it is 

unrealised. Think about owning a house; the value of the house may appreciate 

in value over time. You can't go out and spend that increase in value on a new 

car though because it is not a real gain to you; it only becomes real when you 

sell the house and receive the benefit from that sale. Until that point it is a 

hypothetical gain (i.e. how much you would gain if you sold it at that point in 

time). Don't forget, the house could fall in value again by the time you sell it 

leaving you to find other ways to fund that car you just agreed to buy! 

As this increase in value represents an unrealised gain we cannot record it as 

part of the profit earned during the year. IAS 1 requires that revaluation gains 

are disclosed separately from profit in 'other comprehensive income'. (This is 

covered in a later chapter.)