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Can any one tell me why we account for a revaluation gain through the OCI in the Revaluation Surplus, where for a revaluation loss we charge it to the statement of P&L,
From my understanding i believe its because of the prudence concept to recognize all possible losses but to recognize a gain only upon its realization is certain, can anyone tell me if my understanding in correct or if i am missing anything.If the answer is “prudence” then why do we recognize the revaluation loss on financial assets as per IAS 32 where a choice is made to recognize though FVTOCI, if the concept of Prudence holds good then the revaluation loss on the financial asset shall be recognised in the statement of P&L.
Once upon a time there was only a statement of profit or loss and something like a revaluation gain was recognised directly in equity (as a surplus/reserve) – as you say, it wouldn’t be prudent to recognised an unrealised gain as a profit and distribute it as a dividend. A revaluation loss is an impairment – so to the extent that this exceeds any gains previously recognised in OCI, it must be recognised in profit or loss.
A financial asset can only be measured at FVTOCI if it meets two conditions:
1. It is held within a business model whose objective is achieved through collecting contractual cash flows and selling financial assets (i.e. there is no commitment to keep the asset until maturity – cash may be realised by selling the asset at any time); and
2. Its contractual terms give rise to cash flows on specified dates, which are solely payments of principal and interest.
FVTOCI financial assets are subject to impairment testing – and loss allowances are recognised in PROFIT OR LOSS.
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