Under GAAP vs IFRS, which statement about cost principle and revaluation is true?

• A. Under GAAP and IFRS, all assets are always carried at fair value.
• B. Historical cost records assets at cost; GAAP generally does not allow revaluation; IFRS allows certain asset revaluations to fair value; revaluation increases may be credited to other comprehensive income in some cases.
• C. GAAP allows frequent revaluations; IFRS prohibits revaluation.
• D. Revaluations always affect the income statement.

Answer: (B)

The key idea here is how asset measurement differs between GAAP and IFRS and where changes in value are recorded. Under GAAP, assets are generally carried at their historical cost and rarely revalued upward; impairment losses, when they occur, hit the income statement. This reflects the cost principle and the focus on reliability of recorded amounts.

Under IFRS, you can elect a revaluation model for certain assets (like property, plant and equipment and some intangible assets), allowing those assets to be remeasured to fair value periodically. When a revaluation increases the asset’s carrying amount, the gain is typically recognized in equity as a revaluation surplus in other comprehensive income, rather than immediately in profit or loss. If there’s a subsequent decrease, it reduces the asset’s carrying amount, and the impact generally flows through the income statement to the extent it exceeds any related revaluation surplus in equity.

So the statement that best fits is that assets are recorded at cost under the GAAP framework, GAAP generally does not permit revaluation, IFRS allows certain asset revaluations to fair value, and increases from revaluation may be credited to other comprehensive income in some cases. The other choices misstate the basic measurement approach or where gains and losses are recognized.