Question
On January 1, 2025, Nova Manufacturing purchases a machine for $400,000 plus $40,000 capitalizable installation costs, available for use immediately. Useful life: 10 years. Residual value: $20,000. Straight-line. On January 1, 2028, Nova spends $100,000 on a major upgrade that significantly increases productive capacity; the machine then has 7 years remaining and residual value revised to $15,000. On December 31, 2031, the machine is sold for $240,000.
Required: Prepare the accounting from acquisition through disposal — initial cost, original annual depreciation, carrying amount before the upgrade, revised annual depreciation, and the gain/loss on disposal.
Statements in this challenge
- Initial CostNumeric Answer
- Original Annual DepreciationNumeric Answer
- Carrying Amount Before UpgradeNumeric Answer
- Revised Annual DepreciationNumeric Answer
- Carrying Amount at DisposalNumeric Answer
- Gain on DisposalNumeric Answer
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