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Question:

Consider an asset whose carrying amount was revalued downwards in 2014. In 2015, if the value of the asset is revised upwards, the impact on reported leverage and return on equity will most likely be: Reported Leverage and Return on Equity

A Improves Increases
Explaination

Under the revaluation model (IFRS), if the upward revaluation is reversing a previous downward revaluation, the gain flows through the income statement (to increase net income) and then increases shareholders’ equity. If the upward revaluation is not reversing a previous downward revaluation, the gain flows through the revaluation surplus and increases shareholders’ equity directly.
• In 2015, assets increase along with shareholders’ equity so reported leverage ratios improve (decrease).
• The return on equity also increases as net income and shareholders’ equity both increase. The numerator effect dominates and results in an increase in the ratio.