Question
On January 1, 2025, Northstar Engineering Ltd. acquires a specialized production machine for $1,200,000, made up of two components available for use immediately: main structure ($900,000, 12-year life, $60,000 residual) and high-performance motor ($300,000, 5-year life, no residual). On January 1, 2027, the motor is replaced: the old motor has accumulated depreciation of $120,000 at replacement, no disposal proceeds; the new motor costs $420,000 with a 6-year useful life and no residual value. On December 31, 2028, due to technological changes, the machine is tested for impairment: its carrying amount immediately before the test is $900,000 and its recoverable amount is $650,000; the remaining useful life after impairment is 5 years with a $20,000 residual value. On December 31, 2030, the machine is sold for $480,000.
Required: Determine initial depreciation for each component, the derecognition of the old motor, depreciation of the new motor, the impairment loss, depreciation after impairment, and the gain/loss on disposal.
Statements in this challenge
- Original Annual DepreciationNumeric Answer
- Derecognition EntryJournal Entry
- New Motor RecognitionJournal Entry
- New Motor DepreciationNumeric Answer
- Impairment EntryJournal Entry
- Depreciation After ImpairmentNumeric Answer
- Gain on DisposalNumeric Answer
- Final Disposal EntryJournal 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