Where there is an asset revaluation decrease (decrement) that does not reverse a previous increase (increment), the amount of the decrement is debited to: a. The asset b. Capital c. Revaluation surplus d. Revaluation expense
Question
Where there is an asset revaluation decrease (decrement) that does not reverse a previous increase (increment), the amount of the decrement is debited to:
a. The asset
b. Capital
c. Revaluation surplus
d. Revaluation expense
Solution
The correct answer is:
d. Revaluation expense
Here's why:
When an asset's value decreases (decrement) and it does not reverse a previous increase (increment), the amount of the decrement is recorded as an expense. This is because the asset is now worth less than it was previously recorded, and the company has effectively 'lost' value. This loss is recorded as an expense, hence the term 'revaluation expense'.
The other options are incorrect because:
a. The asset - The asset's value is decreased, but the decrement itself is not debited to the asset. Instead, the asset's value on the balance sheet is reduced.
b. Capital - Capital refers to the financial assets or resources that a company has, which are not directly affected by the revaluation of an asset.
c. Revaluation surplus - This is used when an asset's value increases, not decreases. If an asset's value decreases, it would not be recorded in the revaluation surplus.
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