Question
On January 1, 2027, Apex Energy Ltd. begins constructing a specialized processing facility for $3,500,000, spent during the year ($900,000 Q1, $1,200,000 Q2, $800,000 Q3, $600,000 Q4) and funded by a $2,500,000 borrowing taken out on January 1, 2027 specifically for the construction, at 8% annual interest (no investment income was earned on unspent funds). The facility is ready for use January 1, 2028. Construction creates a legal obligation to dismantle the facility after 10 years of use; the present value of that obligation at January 1, 2027 is $300,000, discounted at 8%. Of the total capitalized cost, $2,800,000 is allocated to the structure component (10-year life) and $700,000 to processing equipment (5-year life); the remaining $500,000 of capitalized construction/borrowing/decommissioning cost is attributable to the structure. Zero residual values. At December 31, 2029, the facility is revalued to its fair value of $3,500,000 (carrying amount immediately before revaluation: $3,060,000); from that date the facility is depreciated as a whole over a remaining useful life of 7 years with zero residual value. Apex does not transfer revaluation surplus to retained earnings as the asset is used. At December 31, 2030, an impairment indicator exists: the carrying amount immediately before the impairment test is $3,000,000 and the recoverable amount is determined to be $2,100,000.
Required: Determine the initial cost of the facility, 2028 depreciation, the decommissioning obligation's year-1 finance (accretion) cost, the revaluation increase, depreciation after revaluation, and the 2030 impairment loss.
Statements in this challenge
- Initial Facility CostNumeric Answer
- 2028 DepreciationNumeric Answer
- Year-1 Accretion (Finance Cost)Numeric Answer
- Revaluation IncreaseNumeric Answer
- Depreciation After RevaluationNumeric Answer
- 2030 Impairment LossNumeric 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