Question
On January 1, 2027, a company spends $80,000 on a major upgrade to equipment. The expenditure should have been capitalized but was incorrectly recorded as Repairs Expense. The upgrade has a remaining useful life of 5 years and no residual value. The error is discovered on December 31, 2027 before the financial statements are finalized.
Required: Correct the original accounting and record 2027 depreciation.
Statements in this challenge
- CorrectionJournal Entry
- 2027 DepreciationJournal Entry
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
How to approach this
IAS 1 — Presentation of Financial Statements
A composite challenge links several statements built from one set of data, so figures flow between them: profit reaches retained earnings, and the closing balances feed the position statement. Complete them in the order the statements depend on each other rather than the order of the tabs.
Common mistakes
- Preparing each statement independently, so the linking figures disagree.
- Carrying a figure forward before finishing the adjustments that change it.
- Reworking a linked figure in one statement without updating it in the others.
Further readingIAS 1: what goes where in a full set of statements