FRA Question from CFAI book someone, because, increase, why

richer1983

CFAI FRA book, page 468, #23


Can someone explain why the answer is B?

My thought is that if an asset is revalued upward, that would increase financial leverage because the numerator (assets) would increase.

ogoluwa

equity is going up (keeping assets equal to liabilities) and debt is staying the same. retained earnings increase through the write up realized in the income statement.

trogulj

scratch that...

the asset revaluation the book is discussing here is an initial revaluation that increases the carrying value of the asset. the increased asset value transitions directly to equity as revaluation surplus, and with it comes higher depreciation expense and greater assets making a wrong.

pg. 459-461 sorry

Matori

-greater equity making A wrong...sorry just figured out how to edit posts



Edited 2 time(s). Last edit at Thursday, May 27, 2010 at 07:25PM by 406analyst.