Question
In October 2026 Larchgate Timber signed a non-cancellable contract to buy 10,000 m³ of timber at $30 per m³, for delivery in March 2027.
By December 31, 2026 timber prices have collapsed. Larchgate now expects to resell the timber for $24 per m³, net of selling costs. The supplier has offered to release Larchgate from the contract in exchange for a penalty of $70,000.
Required:
- Provision — the provision Larchgate must recognise at December 31, 2026.
- Journal Entry — record it, using Loss on Onerous Contract and Provision for Onerous Contract.
- Statement Impact — the effect of that entry on the 2026 financial statements.
Statements in this challenge
- ProvisionNumeric Answer
- Journal EntryJournal Entry
- Statement ImpactStatement Impact
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