Question
On January 1, 2027, Horizon Energy acquires specialized equipment: purchase price $900,000, import duty $30,000, installation $50,000, employee training $20,000 (expensed). Ready for use April 1, 2027. Useful life: 8 years (to March 31, 2035). Residual value: $40,000. Straight-line. On January 1, 2029, Horizon replaces a major component for $120,000; the old component (original cost $100,000, accumulated depreciation $50,000) is separately identifiable and is derecognized with no proceeds. The new component is depreciated separately over 6 years with no residual value; the rest of the equipment's carrying amount is depreciated straight-line over its remaining useful life to March 31, 2035, down to the $40,000 residual value. On December 31, 2030, an impairment test determines a carrying amount before impairment of $585,375 and a recoverable amount of $500,000; at that date the equipment's remaining useful life is reassessed at 4 years, with no residual value. On December 31, 2032, the equipment is sold for $465,000.
Required: determine the initial PPE cost, 2027 depreciation, the old component's carrying amount, the new component's annual depreciation, the impairment loss, and the gain or loss on the final disposal.
Statements in this challenge
- Initial PPE CostNumeric Answer
- 2027 DepreciationNumeric Answer
- Old Component Carrying AmountNumeric Answer
- New Component DepreciationNumeric Answer
- Impairment LossNumeric Answer
- Gain on Final 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