When does unrealised surplus/loss on revaluation become realised?

Unrealised surpluses or losses on revaluation relate to the changes in the value of an asset that have not yet been actualized through a transaction. These amounts remain as either revaluation reserves (in the case of a surplus) or revaluation deficits (in case of a loss) until a specific event leads to their realization.

When the revalued asset is disposed of, any unrealized surpluses or losses become realized. This is because the disposal event marks the transition from an accounting estimate of value to a concrete financial transaction. At the point of sale, the difference between the sale proceeds and the carrying amount of the asset, which has already been revalued, is recognized in profit or loss, effectively converting unrealized gains or losses into realized ones. Thus, the correct answer emphasizes the transformation of unrealized amounts into realized amounts through the act of disposing of the asset.

Other factors, such as revaluing the asset again or declaring dividends, do not convert unrealized gains or losses into realized amounts. The revaluation process itself may adjust values further, but the gains or losses remain unrealized until the asset is sold. Similarly, declaring dividends is an allocation of profits and does not pertain to asset realizations