Accounting · Financial Statements
A financial analyst is reviewing statements for the year ending March 2025. The company revalues its freehold land upwards and simultaneously writes off its preliminary expenses against the securities premium account. Which of the following best describes the ultimate impact on the fundamental Accounting Equation?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Total liabilities increase to balance the revaluation of assets while the owner capital decreases due to the immediate recognition of preliminary expense write-offs.
- 2Total assets remain unchanged because the increase in land value is mathematically offset by the decrease in the securities premium account within the liability side.
- 3Total assets increase by the amount of land revaluation minus the written-off expenses, while equity increases by the revaluation surplus as the write-off is a capital adjustment.✓
- 4Total assets increase by the amount of revaluation while the equity portion remains stagnant because revaluation reserves are considered quasi-liabilities.
Correct answer
Total assets increase by the amount of land revaluation minus the written-off expenses, while equity increases by the revaluation surplus as the write-off is a capital adjustment.
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