Question
Pinehurst Logistics (straight-line depreciation, nearest month): journalize the January 2 acquisition of a machine
partly financed by a note, the June 30 sale of a delivery van (update depreciation to the date of sale, then record
the sale at a loss), annual depreciation on the new machine, and the retirement of fully depreciated equipment.
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 1 — offsetting and presentation
A contra account carries the opposite normal balance to the account it reduces and is presented alongside it, not merged into it. The gross amount and the contra both stay on the books so the reader can see the carrying amount and how it was arrived at.
Common mistakes
- Writing the reduction directly against the asset and losing the gross figure.
- Reporting a contra account on the wrong side of the statement, or as a liability rather than a deduction from its asset.
- Treating accumulated depreciation as an expense — it is a cumulative balance, while depreciation expense is the period charge.
Further readingStraight-line depreciation and accumulated depreciation