The general rule under modified historical-cost accounting is that holding gains on non-current assets should be:
A) Treated as revenue in the period that the fair value of the asset changes.
B) Deferred and amortised over the life of the asset (effectively decreasing depreciation expense).
C) Taken to an asset revaluation reserve unless it is the reversal of a previous devaluation that was expensed. In that case it can be recognised as income to the extent the devaluation was recognised as an expense.
D) Never recognised.
E) None of the given answers.

Question

Quizplus · Accepted Answer

Under modified historical-cost accounting, holding gains on non-current assets should be taken to an asset revaluation reserve unless it is the reversal of a previous devaluation that was expensed. In that case, it can be recognised as income to the extent the devaluation was recognized as an expense. This approach allows companies to recognize the impact of changes in the fair value of their non-current assets while still maintaining the reliability of their financial statements.

The General Rule Under Modified Historical-Cost Accounting Is That Holding