Question
Equipment originally cost $150,000. Accumulated depreciation at June 30, 2028 is $95,000. The equipment is sold for $62,000 cash on June 30.
Required: Determine the gain or loss on disposal.
Statements in this challenge
- AnswerNumeric Answer
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 16 — Property, Plant and Equipment
Initial cost captures everything needed to bring the asset to its location and working condition — purchase price, import duties, site preparation, installation and testing. After recognition, subsequent expenditure is capitalised only if it improves the asset beyond its original standard; otherwise it is repairs.
Common mistakes
- Expensing delivery, installation or testing costs that form part of initial cost.
- Capitalising routine maintenance, or expensing an upgrade that genuinely extends useful life.
- Including recoverable input tax or abnormal wastage in the cost of the asset.
IFRS vs US GAAP: IFRS permits the revaluation model for a whole class of assets; US GAAP requires historical cost.
Further readingIAS 16: initial cost and depreciation