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1. You said in one of your lectures that revaluation reserve is part of equity items because it is unrealized profit which means we have not sold the asset plus not receive any cash in return and we only recognize realized profits in our SOPL which means we sold the asset eventually and received money in return but why you did not say anything why sometimes profit on revaluation recorded as part of other comprehensive income and when it is going to be?
2. Let’s say our assets in our SOFP is worth $60,000 but they are revalued to $100,000 after a year which means we need to increase our asset by $40,000 but what amount will go to the other comprehensive income and when?
3. Is it true that the gain on revaluation of $40,000 will be shown in other comprehensive income as an unrealized profit on revaluation?
4. Is it true that realized profits are recorded in SOPL but Unrealized profits are recorded in OCI until they become realized when we receive cash?
I do actually say this in my lectures.
If an asset is actually sold, then the profit on sale appears in the SOPL and as a result ends up increasing the Revenue reserves.
If an asset is revalued, then the surplus on revaluation does not appear in the SOPL itself, but is shown as an extra line below the SOPL profit in the Statement of Comprehensive Income. As a result it does not increase the Revenue Reserves but instead increases the Revaluation Reserve (which is a capital reserve and is non-distributable).
In your example 2, the assets will increase by $40,000. $40,000 will also appear in the Statement of Comprehensive Income as an unrealised profit, and in the SOFP the Revaluation Reserve will increase by $40,000.
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