Oribi Co revalued its property upwards at the start of the year, while a competitor carries similar property at historical cost. All else being equal, what effect does the revaluation have on Oribi Co's ratios compared with the competitor's?

Correct answer: B) ROCE is lower, because capital employed is higher and higher depreciation reduces profit

Explanation

A revaluation increases non-current assets and equity (the revaluation surplus), so capital employed rises. Depreciation on the higher carrying amount reduces operating profit. Both effects lower ROCE. Gearing falls because equity is higher, and asset turnover falls because assets are higher. This is a key limitation when comparing entities with different accounting policies.