Under a revaluation of PPE, where does the surplus go?

• A. It increases the asset's carrying amount only.
• B. It is recognized as a gain in P/L.
• C. It increases the asset's carrying amount and creates a revaluation surplus in equity.
• D. It is recognized as a deferred tax liability.

Answer: (C)

When you revalue PPE upward, you raise the asset’s carrying amount to reflect its new fair value and you record the gain in equity as a revaluation surplus. This keeps the income statement free of unrealized gains, since the increase isn’t realized through sale. The revaluation surplus sits in equity and can be drawn on only in limited ways (it offsets prior revaluation decreases recognized in P&L if they exist, and it may be transferred to retained earnings on disposal). In short, the surplus from a positive revaluation is posted to equity as a revaluation surplus, while the asset’s carrying amount increases accordingly.