Question

Which of the following statements is correct?

1. Both IFRS and GAAP permit revaluation of property, plant, and equipment.
2. IFRS permits revaluation of property, plant, and equipment but not GAAP.
3. Both IFRS and GAAP do not permit revaluation of property, plant, and equipment.
4. GAAP permits revaluation of property, plant, and equipment but not IFRS.

Short answer

IFRS permits revaluation of property, plant, and equipment but not GAAP. The correct option is option (b).

Step-by-step solution

Meaning of Revaluation

Revaluation funds are set up on a balance sheet to preserve a contingency account linked to other assets. Upon re-evaluation, if the carrying value of the asset changes, a line item will be created.

Explaining the correct option

IFRS is a collection of accounting standards produced by the International Accounting Standards Board (IASB), a non-profit organization. It is a collection of globally agreed accounting standards that lays out rules and procedures of accounting.

GAAP is a set of rules, ideas, and principles that are utilized to report a company's financial data. Therefore, option (b), which states that IFRS permits revaluation of property, plant, and equipment but not GAAP, is correct.

Explaining the incorrect options

Option (a): Under GAAP, it is only possible for component depreciation, although it is not mandatory, while in IFRS, revaluation of assets is permitted.

Option (c): Revaluation of assets is possible only under IFRS and not in GAAP. IFRS follows accounting standards while GAAP is rule-based.

Option (d): GAAP permits only component depreciation and not revaluation of assets. Revaluation of property, plant, and equipment are permitted in IFRS.