A company which prepares its financial statements
A company, which prepares its financial statements in accordance with IFRS uses the revaluation model to value land. At the end of the current year the land value of the land has increased and will be adjusted on the balance sheet. Which of the following statements is most accurate? In the current period the revaluation of the land will:
A. increase return on sales.
B. increase return on assets.
C. decrease the debt to equity ratio.
参考解答
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2024-11-15 02:41:03
Ans:C.
The increase in the value of the land bypasses the income statement and goes directly to a revaluation surplus account in equity. Equity increases thereby decreasing the debt to equity ratio.
A is incorrect.
Return on sales=
The increase in the value of the land bypasses the income statement and goes directly to a revaluation surplus account in equity. It doesn’t affect net income or sales. So the return on sales stays the same.
B is incorrect.
Return on asset=
The increase in the value of the land increases asset, while the net income stays the same. So it decreases the return on asset.
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