[Iggy1985]

Veronica Corp. uses the revaluation model for intangible assets. On March 1, year 1, Veronica acquired intangible assets with an indefinite life for $200,000. On December 31, year 1, it was determined that the recoverable amount for these intangible assets was $180,000. On December 31, year 2, it was determined that the intangible assets had a recoverable amount of $187,000. How should Veronica recognize the gain or loss in the December 31, year 2 financial statements?

Unrealized gain in other comprehensive income of $7,000.

This answer is correct. The revaluation model recognizes gains and losses in other comprehensive income for the period.

From IAS:

If a revaluation results in an increase in value, it should be credited to other comprehensive income and accumulated in equity under the heading “revaluation surplus” unless it represents the reversal of a revaluation decrease of the same asset previously recognised as an expense, in which case it should be recognised in profit or loss. [IAS 16.39]

A decrease arising as a result of a revaluation should be recognised as an expense to the extent that it exceeds any amount previously credited to the revaluation surplus relating to the same asset. [IAS 16.40]

Since it first decreased in value on 12/31 wouldn’t it have been recognized as an expense, and then the increase recognized in profit or loss?

FAR - 89 (8/19/14) Wiley TB, Wiley Book, Books from School, Ninja Audio/Notes
AUD - 92 (10/14/14) Wiley TB, Wiley Book, Ninja Audio
BEC - 82 (5/8/15) Mostly Ninja MCQ, sprinkles of Becker lectures and Ninja Audio
REG - (8/14/15)

[jstay]

yeah what your saying seems right, as well as in the explanation IAS 16.39

now lets say if it had increased 27,000 to 207,000.

then the 20,000 would be on profit and loss and the 7,000 would go to OCI

where is this question from?

[Iggy1985]

yeah, I agree – it's from Wiley TB

FAR - 89 (8/19/14) Wiley TB, Wiley Book, Books from School, Ninja Audio/Notes
AUD - 92 (10/14/14) Wiley TB, Wiley Book, Ninja Audio
BEC - 82 (5/8/15) Mostly Ninja MCQ, sprinkles of Becker lectures and Ninja Audio
REG - (8/14/15)

[M.O.D.]

Some possible notes:

IFRS requires that intangible assets be traded in active markets to be revalued.

That is separate from impairment, which is what this problem indicates. (Recoverable amount is an impairment calculation).

But an impairment recovery would also go to net income.

https://www.caclubindia.com/articles/impairment-of-assets-under-ifrs-5607.asp#.U_IhcWNuWNg

It says above that if a revaluation model is used, impairment would be considered a revaluation.

But in both cases, revaluation and impairment, the original decrease would be to NI and the subsequent recovery to NI to the extent of the prior decline.

BA Mathematics, UC Berkeley
Certificates in CPA and EA preparation, College of San Mateo
CMA I 420, II 470
FAR 91, AUD Feb 2015 (Gleim self-study)

[jstay]

so then this question is wrong?

[M.O.D.]

I would say, yes the answer is wrong.

BA Mathematics, UC Berkeley
Certificates in CPA and EA preparation, College of San Mateo
CMA I 420, II 470
FAR 91, AUD Feb 2015 (Gleim self-study)

[Author]

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