Question
A production facility was acquired for $1,000,000, containing a building shell ($700,000, 20-year life) and a cooling system ($300,000, 6-year life). After four years, on January 1, 2027, the cooling system is replaced for $420,000. The old cooling system's accumulated depreciation is $200,000. The replacement has a useful life of 7 years.
Required: Record the derecognition of the old cooling system, record the replacement, and calculate depreciation of the new cooling system.
Statements in this challenge
- DerecognitionJournal Entry
- ReplacementJournal Entry
- New Cooling System DepreciationNumeric 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