Veronica Corp. uses the revaluation model for intangible assets. On March 1, 2010, Veronica acquired intangible assets with an indefinite life for $200,000. On December 31, 2010, it was determined that the recoverable amount for these intangible assets was $180,000. On December 31, 2011, 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, 2011 financial statements?
• Unrealized gain in other comprehensive income of $7,000.
• Loss on the income statement of $20,000.
• Gain on the income statement of $7,000.
• Unrealized loss in other comprehensive income of $20,000.
Correct answer is: Unrealized gain in other comprehensive income of $7,000.
I thought the answer would be: Gain on the income statement of $7,000. because the theory said:
” Revaluation gains (fair value > carrying value before revaluation) are reported in other
comprehensive income and accumulated in equity as revaluation surplus, unless the
revaluation gain reverses a previously recognized revaluation loss. Revaluation gains
are reported on the income statement to the extent that they reverse a previously
recognized revaluation loss”
Normally, the revaluation gain $7,000 would be recorded in Comperhensive Income. I agree. But there was a loss $20,000 in earluer. wouldnt $7,000 reduce the previously regonised loss of $20,000. ???
Please help
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