Under the revaluation model for PPE, when fair value rises, the gain is handled by offsetting any prior downward movements that hit profit or loss first. If the asset had previously experienced a decrease in value that reduced net income, the upward revaluation is recognized in net income to the extent of those prior losses. Any remaining portion of the increase is then recorded in equity as a revaluation surplus (OCI). If there were no previous decreases to reverse, the entire gain goes to OCI. This mechanism is why recognizing the gain first in net income up to the amount of previous losses, with the remainder going to OCI, is the correct treatment.

Substantive procedures are evidence-gathering activities aimed at detecting material misstatements at the assertion level. They come in two main forms: tests of details, which examine individual transactions, balances, and disclosures to verify accuracy, and substantive analytical procedures, which assess financial information by analyzing plausible relationships and trends, such as comparing ratios or margins over time. Because substantive procedures are about directly detecting misstatements, both tests of details and substantive analytical procedures fall under this category. Tests of controls, by contrast, focus on evaluating the design and operating effectiveness of a client’s internal controls and influence how much substantive testing is needed, but are not themselves substantive procedures. Therefore, the combination of tests of details and substantive analytical procedures best identifies substantive procedures.

Temporary differences between financial reporting and tax rules create deferred tax assets and liabilities. A deferred tax asset arises when deductible differences or tax loss carryforwards will reduce future taxes, so it sits as a positive balance on the asset side of the balance sheet. A deferred tax liability, by contrast, reflects taxable differences that will increase future taxes and appears as a liability (a negative balance). Therefore, a positive balance for deferred taxes represents a deferred tax asset. Some jurisdictions may allow netting, but the fundamental idea is that a positive amount signals an asset.

Accretion is the unwinding of the discount on a present-value liability as time passes. When an asset retirement or decommissioning obligation is initially recorded, it’s measured at a present value. As each period passes, the liability increases by the amount of interest that accrues on its balance at the discount rate, even before any cash outlay occurs. This increase is recognized as accretion expense and raises the carrying amount of the liability on the balance sheet. The actual settlement happens in the future, when the obligation is paid, but the liability grows over time due to the passage of time and the discount unwinding. So the statement is true: accretion systematically increases the obligation over time.

A financial instrument is defined by the contract it creates that gives rise to a financial asset for one party and a financial liability or equity instrument for another. This captures the essential idea: the instrument is not just a document or a form of cash, but a contractual arrangement that generates rights to future cash flows or ownership rights for different entities. Examples include loans receivable, bonds, shares, and derivatives, all of which involve one party holding a financial asset and another party facing a financial liability or equity claim. The other descriptions are too narrow or inaccurate. A non-transferable asset with no future economic benefits isn’t a financial instrument, since these typically involve rights to future cash flows or ownership and are often transferable. A document representing ownership covers only equity and ignores other financial instruments like debt or derivatives. A cash instrument used for currency exchange only is too limited, since financial instruments also include contracts settled in other ways, such as by delivering another asset or cash.