AFM 291 Case Guide: AceSpin Inc. · Week 9 problem-solving companion

HOW TO USE THIS DOCUMENT Step 1: attempt cold (§1): build both timelines and draft every journal entry before reading §6–§7. Step 2: mark yourself against the worked playbooks, using §2 to see where marks actually sit. Step 3: drill (§11): the counterfactuals change one fact each and force the concept to move. Numbers follow the official sample-solution conventions (rounded to the nearest dollar).

1. Cold Attempt First: the Scenario in Brief + Blank Deliverables

AceSpin Inc. (ASI), publicly traded Canadian manufacturer of tennis racquets, balls and ball machines. It is April 5, 2026; the team is finalizing the December 31, 2025 statements. Cost model; months for partial-year depreciation; borrowing rate 5%; no borrowings other than the loan below. Required: apply the Problem-Solving Process and prepare all 2025 and 2026 journal entries for both scenarios (assume nothing recorded yet; all payments made as scheduled). Classification and recognition need only be analyzed for the equipment. All issues are material.

Asset	Facts you must work with
Custom manufacturing equipment	Delivered Jan 1, 2025 from ProTech; minor installation by a separate supplier during January: $152,000 paid Jan 31; ready to use end of January, in production Feb 1. Price $3,855,000: $1,270,000 on delivery, $1,690,000 due Jan 1, 2026, $895,000 due Jan 1, 2027, no stated interest; ProTech's regular terms are payment within 6 months. Manufacturer life 20 years; ASI expects to use it 15 years then sell for $750,000; benefit consumed equally.
Raw-material storage warehouse	Self-constructed on ASI's land, adjacent to the plant. Construction Feb 1, 2025 → complete and ready Mar 31, 2026. Contractor: $1M (Feb 1/25), $4M (Mar 1/25), $3M (Aug 1/25), $2M (Mar 31/26). $3M bank loan Feb 1, 2025 at 5%; principal due Dec 31, 2026; interest paid each Feb 1 and at maturity. Only $1M needed before Mar 1/25 → $2M excess invested at 1% for February. Engineering firm (design approval) paid $360,000 on Mar 31/26; it estimates 20% of total costs relate to the roof. Building life 25 years, residual $1,800,000; roof replaced in 10 years; benefit consumed equally.

Asset

Facts you must work with

Custom manufacturing equipment

Delivered Jan 1, 2025 from ProTech; minor installation by a separate supplier during January: $152,000 paid Jan 31; ready to use end of January, in production Feb 1. Price $3,855,000: $1,270,000 on delivery, $1,690,000 due Jan 1, 2026, $895,000 due Jan 1, 2027, no stated interest; ProTech's regular terms are payment within 6 months. Manufacturer life 20 years; ASI expects to use it 15 years then sell for $750,000; benefit consumed equally.

Raw-material storage warehouse

Self-constructed on ASI's land, adjacent to the plant. Construction Feb 1, 2025 → complete and ready Mar 31, 2026. Contractor: $1M (Feb 1/25), $4M (Mar 1/25), $3M (Aug 1/25), $2M (Mar 31/26). $3M bank loan Feb 1, 2025 at 5%; principal due Dec 31, 2026; interest paid each Feb 1 and at maturity. Only $1M needed before Mar 1/25 → $2M excess invested at 1% for February. Engineering firm (design approval) paid $360,000 on Mar 31/26; it estimates 20% of total costs relate to the roof. Building life 25 years, residual $1,800,000; roof replaced in 10 years; benefit consumed equally.

Your blank deliverables, reproduce on paper before turning the page:

Deliverable	What “complete” looks like
Two timelines	Every date, payment, year-end, readiness date and financing event placed (compare §4)
Issue list	Five issues, each named as classification / recognition / initial measurement / subsequent measurement (compare §5)
Equipment analysis	Met?-tables for classification and recognition; cost build-up; depreciation parameters
Warehouse analysis	QA conclusion; capitalization window; interest computation net of investment income; component split
Journal entries	2025: four equipment entries + six warehouse entries. 2026: three equipment entries + six warehouse entries (counting the two-line Dec 31/25 interest treatment as two)

INDICATIVE TIME BUDGET Proportions, not minutes: assess ~15% · identify ~10% · analyze ~40% · recommend (journal entries, stated to the dollar) ~35%. If analysis passes half your time before any entry exists, start writing entries: the recommend step carries the calculations.

2. How PBL Answers Are Marked (Assess → Identify → Analyze → Recommend)

Stage	What the marker wants	AceSpin example of the standard
Assess the situation	Users, required, context factors; an accurate timeline of transactions and events	Public company (IFRS, not ASPE) · Dec 31 year-end · finalizing 2025 statements in April 2026 · both timelines drawn
Identify the issues	Issues named in financial-reporting language, scoped to what the required asks	The five issues of §5, not “how do we account for the machine?”
Analyze	Standard quoted → criterion → connected to a quoted case fact → met?/conclusion, for every judgment	“Held for use in the production of goods: the equipment is used in the production of tennis equipment, criterion met”
Recommend	Full journal entries, dated, supported by visible calculations	§6.4 and §7.5, every figure traceable to a computation shown earlier

WHY IT MATTERS “Connect to case facts” is where PBL marks live. Every lecture solution writes the connection explicitly: criterion, then the fact, then “criteria met.” An answer that recites IAS 16.6 without quoting AceSpin facts scores like a definitions quiz, not a case response.

3. The Two-Asset Mindset: the Distinction That Runs the Whole Case

AceSpin is deliberately built as a contrast pair. Classify each asset correctly at the start and every later step falls out mechanically; blur them and both cost build-ups go wrong. This table is the case:

	Manufacturing equipment	Warehouse
Nature	PURCHASED asset, ready for use one month after delivery (minor installation)	SELF-CONSTRUCTED asset, 14 months of construction
Qualifying asset (IAS 23)?	NO, no substantial period needed to ready it	YES, necessarily takes a substantial period
Financing element	Deferred payments beyond normal 6-month terms → discount to cash price equivalent (PV at 5%)	$3M specific bank loan at 5% during construction
Interest treatment	EXPENSED over time as note accretion (effective interest), never touches the asset	CAPITALIZED Feb 1/25 → Mar 31/26, net of temporary investment income; expensed after
Cost	PV 3,691,315 + installation 152,000 = $3,843,315	10,000,000 + 360,000 engineering + 173,333 interest = $10,533,333
Components	None identified, one unit	Roof 20% ($2,106,667, 10-yr life, no residual) + building 80% ($8,426,666, 25-yr life, $1,800,000 residual)
Depreciation starts	Feb 1, 2025 (available for use) → 11/12 in 2025	Apr 1, 2026 (ready Mar 31) → 9/12 in 2026; nothing in 2025

EXAM TRAP Both assets carry 5% interest: and the treatments are opposite. The note's implicit 5% is the cost of credit on a purchased, ready-to-use machine: accretion expense. The loan's 5% is the cost of financing construction of a qualifying asset: capitalized while construction runs. Students who capitalize the note interest (or expense the construction interest) have missed the QA test: Core §4's first question.

4. Assess: Build the Timelines

The official solution's “assess” step is two timelines. Amounts, year-ends, readiness dates, financing events, everything you need for the entries is already on them.

Equipment: one asset, two years of entries, acquisition PV, installation, depreciation from availability, and note accretion until the note dies Jan 1, 2027.

Warehouse: the capitalization window is the spine, commence Feb 1, 2025 (all three IAS 23 conditions met on one day), cease Mar 31, 2026 (ready), depreciation from Apr 1, 2026.

5. Identify: the Five Issues

#	Issue (financial-reporting language)	Standard	Core §
1	Classification of the manufacturing equipment as PP&E, and whether it can be recognized	IAS 16.6–.7	§2
2	Initial measurement of the equipment: deferred payment terms + installation	IAS 16.16–.17, .23	§3
3	Subsequent measurement of the equipment: method, life, residual, partial year	IAS 16.50–.62	§8
4	Initial measurement of the warehouse: engineering fees + borrowing costs	IAS 16 + IAS 23	§3–§4
5	Subsequent measurement of the warehouse: components, timing, partial year	IAS 16.43–.45	§6, §8

The required expressly says: do not repeat classification/recognition for the warehouse, it clearly qualifies. Spending lines there earns nothing.

6.1 Classification and recognition: the Met?-tables

IAS 16.6 criterion	Case fact	Met?
Tangible item	Physical automated string-weaving machine	Yes
Held for use in production or supply of goods	Specifically designed for and used in ASI's tennis-equipment production	Yes
Expected to be used > one period	ASI expects to use it for 15 years	Yes

IAS 16.7 criterion	Case fact	Met?
Probable future economic benefits	Used in core manufacturing; cash flows from production and the expected $750,000 resale	Yes
Cost reliably measurable	Price negotiated with the vendor; installation invoiced by a separate supplier	Yes

Conclusion: classify and recognize as PP&E. Two lines each, criterion → fact → met, that is the full expected answer.

6.2 Initial measurement: cash price equivalent + installation

ProTech's normal terms are six months; ASI pays over two years → the price contains financing. Cost = PV of the payments at ASI's 5% borrowing rate:

Payment	Timing	PV at 5% ($)
$1,270,000	On delivery (Jan 1, 2025)	1,270,000
$1,690,000	1 year away: ÷ 1.05	1,609,524
$895,000	2 years away: ÷ 1.05²	811,791
Cash price equivalent		3,691,315
Installation, necessary to bring the asset to working condition	Paid Jan 31, 2025	152,000
Total capitalized cost		3,843,315

EXAM TRAP No IAS 23 capitalization here: and you must say why: the machine was ready for use within a month of delivery after minor installation, so it is not a qualifying asset. The implicit interest unwinds through interest expense (accretion) over 2025–2026. One explicit sentence in the exam; several marks.

6.3 Subsequent measurement: depreciation parameters

Straight-line (“benefit consumed equally”). Useful life to ASI = 15 years, management's expected period of use governs, not the manufacturer's 20-year physical life; the 20 years simply makes the 15 credible. Residual = $750,000 expected sale price at the end of year 15. Depreciable amount = 3,843,315 − 750,000 = 3,093,315; annual charge = 3,093,315 ÷ 15 = 206,221. Available for use end of January → 2025 charge = 206,221 × 11/12 = 189,036; 2026 = a full 206,221.

6.4 The note-payable schedule (official solution figures)

Date	Payment ($)	Accretion at 5% ($)	Note balance ($)
Jan 1, 2025, initial PV of deferred payments			2,421,315.19
Dec 31, 2025, accretion (2,421,315 × 5%)		121,065.76	2,542,380.95
Jan 1, 2026, payment	(1,690,000)		852,380.95
Dec 31, 2026, accretion (852,381 × 5%)		42,619.05	895,000.00
Jan 1, 2027, payment	(895,000)		0.00

The built-in check: the balance accretes to exactly $895,000 the day before the final payment. If yours doesn't, the PV or a payment is wrong.

6.5 All equipment journal entries

Jan 1, 2025: acquisition at cash price equivalent	Jan 1, 2025: acquisition at cash price equivalent	Jan 1, 2025: acquisition at cash price equivalent
Dr PP&E: Manufacturing Equipment	3,691,315
Cr Cash		1,270,000
Cr Long-Term Note Payable		2,421,315

Jan 31, 2025: installation (directly attributable)	Jan 31, 2025, installation (directly attributable)	Jan 31, 2025, installation (directly attributable)
Dr PP&E: Manufacturing Equipment	152,000
Cr Cash		152,000

Dec 31, 2025: depreciation (206,221 × 11/12)	Dec 31, 2025, depreciation (206,221 × 11/12)	Dec 31, 2025, depreciation (206,221 × 11/12)
Dr Depreciation Expense: Mfg Equipment	189,036
Cr Accumulated Depreciation: Mfg Equipment		189,036

Dec 31, 2025: note accretion (2,421,315 × 5%)	Dec 31, 2025, note accretion (2,421,315 × 5%)	Dec 31, 2025, note accretion (2,421,315 × 5%)
Dr Interest Expense	121,066
Cr Long-Term Note Payable		121,066

Jan 1, 2026: first deferred payment	Jan 1, 2026: first deferred payment	Jan 1, 2026: first deferred payment
Dr Long-Term Note Payable	1,690,000
Cr Cash		1,690,000

Dec 31, 2026: depreciation (full year)	Dec 31, 2026, depreciation (full year)	Dec 31, 2026, depreciation (full year)
Dr Depreciation Expense: Mfg Equipment	206,221
Cr Accumulated Depreciation: Mfg Equipment		206,221

Dec 31, 2026: note accretion (852,381 × 5%)	Dec 31, 2026, note accretion (852,381 × 5%)	Dec 31, 2026, note accretion (852,381 × 5%)
Dr Interest Expense	42,619
Cr Long-Term Note Payable		42,619

7.1 IAS 23 applied: specific borrowing, netted for investment income

Qualifying asset? Yes, construction necessarily runs Feb 2025 to Mar 2026. The $3M loan exists to finance this construction and ASI has no other borrowings → specific borrowing: capitalize its actual cost less income from temporarily investing unused funds. Commencement: Feb 1, 2025, expenditures (contractor $1M), borrowing costs (loan drawn) and construction activities all start that day, so all three conditions are met at once. Cessation: Mar 31, 2026, complete and ready for use.

Capitalized interest	Computation	Amount ($)
2025 gross interest (11 months)	3,000,000 × 5% × 11/12	137,500
Less: temporary investment income (Feb only)	2,000,000 × 1% × 1/12	(1,667)
2025 net capitalized		135,833
2026 capitalized (Jan 1 – Mar 31)	3,000,000 × 5% × 3/12	37,500
Total capitalized		173,333

The lifetime reconciliation the official solution tables, worth memorizing as a self-check:

Loan interest, Feb 1, 2025 → Dec 31, 2026 (23 months)	Amount ($)
Total interest incurred (3,000,000 × 5% × 23/12)	287,500
Capitalized, Feb 1/25 → Mar 31/26 (net of 1,667 investment income)	(173,333)
Expensed over the loan's life	114,167

7.2 Cost build-up and component allocation

Warehouse cost	Amount ($)
Contractor payments (1M + 4M + 3M + 2M)	10,000,000
Engineering fees, design approval, directly attributable	360,000
Capitalized borrowing costs (above)	173,333
Total cost	10,533,333
Roof component: 20% (10-year life, no residual)	2,106,667
Building component: 80% (25-year life, residual 1,800,000)	8,426,666

KEY RULE The 20% applies to TOTAL cost: including the engineering fees and the capitalized interest, not just the contractor payments. And the residual: the case says “the building will have … a residual value of $1,800,000,” so all of it belongs to the building component; the roof (replaced in 10 years) has none. The roof is significant (20%) with a materially different life, exactly IAS 16.43's trigger for separate depreciation.

7.3 Depreciation: from availability, not completion of the paperwork

Ready for use Mar 31, 2026 → depreciation runs Apr–Dec 2026 = 9 months. Roof: 2,106,667 ÷ 10 × 9/12 = 158,000. Building: (8,426,666 − 1,800,000) ÷ 25 × 9/12 = 198,800. Total 2026 charge 356,800. Nothing in 2025, the asset was not yet available for use.

7.4 All warehouse journal entries: 2025

Feb 1, 2025: draw the loan; first contractor payment; invest the excess	Feb 1, 2025: draw the loan; first contractor payment; invest the excess	Feb 1, 2025: draw the loan; first contractor payment; invest the excess
Dr Cash	3,000,000
Cr Bank Loan Payable		3,000,000
Dr PP&E: Warehouse under Construction	1,000,000
Cr Cash		1,000,000
Dr Short-Term Investment	2,000,000
Cr Cash		2,000,000

Mar 1, 2025: collapse the investment (with February's 1% income); pay contractor	Mar 1, 2025: collapse the investment (with February's 1% income); pay contractor	Mar 1, 2025: collapse the investment (with February's 1% income); pay contractor
Dr Cash	2,001,667
Cr Short-Term Investment		2,000,000
Cr Interest Income (2,000,000 × 1% × 1/12)		1,667
Dr PP&E: Warehouse under Construction	4,000,000
Cr Cash		4,000,000

Aug 1, 2025: contractor payment	Aug 1, 2025: contractor payment	Aug 1, 2025: contractor payment
Dr PP&E: Warehouse under Construction	3,000,000
Cr Cash		3,000,000

Dec 31, 2025: accrue 11 months' interest, then capitalize net of investment income	Dec 31, 2025: accrue 11 months' interest, then capitalize net of investment income	Dec 31, 2025: accrue 11 months' interest, then capitalize net of investment income
Dr Interest Expense (3,000,000 × 5% × 11/12)	137,500
Cr Interest Payable		137,500
Dr PP&E: Warehouse under Construction	135,833
Cr Interest Expense (137,500 − 1,667)		135,833

No depreciation at Dec 31, 2025. The two interest lines may be combined into one net entry; the official solution notes both presentations are acceptable. Net 2025 P&L effect of the financing: 137,500 expense − 135,833 capitalized − 1,667 income = 0, everything the construction caused ended up in the asset.

7.5 All warehouse journal entries: 2026

Feb 1, 2026: pay the first year's interest (12 months to Jan 31)	Feb 1, 2026, pay the first year's interest (12 months to Jan 31)	Feb 1, 2026, pay the first year's interest (12 months to Jan 31)
Dr Interest Expense (January 2026)	12,500
Dr Interest Payable (accrued at Dec 31/25)	137,500
Cr Cash (3,000,000 × 5%)		150,000

Mar 31, 2026: final contractor payment; engineering; capitalize Q1 interest; construction ends	Mar 31, 2026: final contractor payment; engineering; capitalize Q1 interest; construction ends	Mar 31, 2026: final contractor payment; engineering; capitalize Q1 interest; construction ends
Dr PP&E: Warehouse under Construction	2,000,000
Cr Cash		2,000,000
Dr PP&E: Warehouse under Construction	360,000
Cr Cash (engineering fees)		360,000
Dr PP&E: Warehouse under Construction	37,500
Cr Interest Expense (3,000,000 × 5% × 3/12)		37,500

Dec 31, 2026: repay principal + 11 months' interest (Feb–Dec, paid at maturity)	Dec 31, 2026, repay principal + 11 months' interest (Feb–Dec, paid at maturity)	Dec 31, 2026, repay principal + 11 months' interest (Feb–Dec, paid at maturity)
Dr Bank Loan Payable	3,000,000
Dr Interest Expense (3,000,000 × 5% × 11/12)	137,500
Cr Cash		3,137,500

Dec 31, 2026: move the completed asset into its components	Dec 31, 2026: move the completed asset into its components	Dec 31, 2026: move the completed asset into its components
Dr PP&E: Roof (20%)	2,106,667
Dr PP&E: Warehouse Building (80%)	8,426,666
Cr PP&E: Warehouse under Construction		10,533,333

Dec 31, 2026: depreciation, 9 months from availability (Apr 1)	Dec 31, 2026, depreciation, 9 months from availability (Apr 1)	Dec 31, 2026, depreciation, 9 months from availability (Apr 1)
Dr Depreciation Expense	356,800
Cr Accumulated Depreciation: Roof		158,000
Cr Accumulated Depreciation: Warehouse Building		198,800

OFFICIAL-SOLUTION NUANCES Two flexibilities flagged in red in the sample solution: (1) the roof and building can stay in one PP&E account or be separated, as long as depreciation is computed separately and cost + accumulated depreciation are tracked per component (you'll need them when the roof is derecognized in 10 years); (2) the component split could equally have been recorded at March 31, 2026 when the warehouse was complete: Dec 31 is a presentation choice, not a rule.

8. Professional Judgments & Quality-of-Earnings Red Flags

A stated learning outcome of this PBL is seeing how much of PP&E accounting is estimate and judgment. Name these explicitly in your answer:

Judgment	The call in AceSpin	Why it matters (QoE angle: Core §11)
Useful life	15-year expected use governs over the 20-year physical life	Longer life → lower annual depreciation; watch for lives that stretch when earnings tighten
Residual values	$750,000 (equipment) and $1,800,000 (building), management estimates	Higher residual → lower depreciable base; both are unverifiable until far in the future
Component split	20% roof rests on one engineering estimate	Shifting weight to the 25-year building from the 10-year roof cuts the near-term charge (drill 2 quantifies it)
Ready-for-use dates	Equipment end of January; warehouse Mar 31, 2026	The dates set both when depreciation starts and when interest capitalization stops, two levers on one estimate
Temporary investment window	Excess funds “temporary” for February only	Longer window → more income netted → less capitalized
QA conclusion itself	Equipment no, warehouse yes	The binary that decides whether 5% interest hits income now or the balance sheet

9. Red-Flag Phrases: What the Case Writer Is Signalling

If the case says…	It signals…	Action
“Regular payment terms are payment due within 6 months”	Actual terms are beyond normal credit	PV the payments at the borrowing rate, cash price equivalent
“Installation, which was minor … ready to use by the end of January”	Not a qualifying asset; availability date	No IAS 23 capitalization; depreciation from availability (11/12)
“Put into production on February 1st”	Distractor	Depreciation follows availability for use, not first production run
“No borrowings other than the $3M noted”	Specific borrowing; no general pool	Capitalize actual loan interest, net of temporary investment income
“Excess funds were invested at 1% for the month of February”	IAS 23 netting requirement	Deduct 2,000,000 × 1% × 1/12 = 1,667 from 2025 capitalization
“Engineering firm … estimates that 20% of the total costs relate to the roof”	Component accounting	Split TOTAL cost (incl. engineering + interest) 20/80; separate lives
“The roof will need to be replaced in 10 years”	Different useful life; future derecognition	10-year roof life now; replacement = derecognize old + capitalize new
“Publicly traded Canadian company”	IFRS applies	Capitalization is mandatory (IAS 23), not the ASPE policy choice
“The benefit … consumed equally over the useful lives”	Depreciation pattern given	Straight-line, say why, don't just assume
“Useful life of 20 years. We expect to use it for 15 years … sold for $750,000”	Entity-specific period of use	Depreciate over 15 years to the $750,000 residual

10. The Mistakes That Actually Cost Marks

#	Mistake	Correct reflex
1	Recording the equipment at the $3,855,000 nominal price	PV at 5% → 3,691,315 (+ 152,000 installation)
2	Capitalizing the note's implicit interest into the equipment	Not a QA, accretion is interest expense
3	12/12 equipment depreciation in 2025, or warehouse depreciation before Apr 1, 2026	Months from availability: 11/12 and 9/12
4	Forgetting the Dec 31, 2025 accretion entry (or accreting after the balance hits 895,000)	Accrete every year-end; the schedule self-checks to zero
5	Allocating interest and engineering fees only to the building component	The 20/80 split applies to TOTAL cost: 10,533,333
6	Capitalizing 137,500 gross in 2025	Net the 1,667 temporary investment income → 135,833
7	Capitalizing loan interest after Mar 31, 2026	Cessation at readiness; Apr–Dec 2026 interest (112,500 of the lifetime 114,167) is expense
8	Giving the roof a share of the $1,800,000 residual	The case assigns the residual to the building; roof depreciates to nil
9	Depreciating over 20 years (manufacturer's life)	15-year expected period of use governs
10	Treating the future roof replacement as a repair in discussion	Replacement of a significant part: derecognize old carrying amount + capitalize new (Core §5–§6)

11. Counterfactual Drills (What If the Facts Flipped)

Drill 1: The $3M loan is general borrowing (ASI has other debt at 5%)

Recompute 2025 capitalized interest under the general-borrowings model (Core §4.2 Dolan method): weight each expenditure from its payment date.

ANSWER WAAE × rate: 1,000,000 × 11/12 + 4,000,000 × 10/12 + 3,000,000 × 5/12 = 5,500,000; × 5% = 275,000 computed. But the cap bites: actual 2025 interest incurred is only 137,500 → capitalize 137,500. Two structural changes from the specific-borrowing answer: the cap becomes binding (construction spend of $8M outruns the $3M borrowed), and there is no investment-income netting: that netting is a specific-borrowings rule only. Note the irony: general treatment here capitalizes MORE (137,500 > 135,833).

Drill 2: The engineering firm says 30% roof, not 20%

ANSWER Roof 3,160,000; building 7,373,333. 2026 depreciation: roof 3,160,000 ÷ 10 × 9/12 = 237,000; building (7,373,333 − 1,800,000) ÷ 25 × 9/12 = 167,200; total 404,200 vs 356,800, a 47,400 (13%) jump from one estimate. That sensitivity is the §8 QoE point in numbers: the shorter-lived component's weight drives the near-term charge.

Drill 3: ProTech's normal terms were 2 years (payments as scheduled)

ANSWER Then the payment schedule is WITHIN normal credit terms → no financing element to strip: record the equipment at the gross 3,855,000 + 152,000 installation; no note accretion. Depreciable amount becomes 3,855,000 + 152,000 − 750,000 = 3,257,000 → annual 217,133; 2025 = 199,039 (11/12). The lesson: “beyond normal terms” is the trigger, not deferral itself.

Drill 4: April 2036: the roof is replaced for $2,500,000 cash

ANSWER By then the roof (10-year life from Apr 1, 2026) is fully depreciated: NBV nil → no loss on derecognition. Dr Accumulated Depreciation: Roof 2,106,667 / Cr PP&E: Roof 2,106,667; then Dr PP&E: Roof (new) 2,500,000 / Cr Cash 2,500,000. Contrast Kimberley (Core §5.3), where replacement mid-life produced a 1.6M loss. Component accounting set up in 2026 is what makes the 2036 entry two clean lines.

12. Pre-Submission Audit Checklist

✓	Check
☐	Equipment cost = 3,843,315 (PV 3,691,315 + installation 152,000), not 3,855,000 anywhere
☐	Note schedule accretes to exactly 895,000 before the Jan 1, 2027 payment (then 0)
☐	Equipment depreciation: 189,036 (2025, 11/12) then 206,221 (2026)
☐	Stated explicitly: equipment is NOT a qualifying asset (why), warehouse IS (why)
☐	2025 capitalized interest = 135,833 (gross 137,500 net of 1,667); 2026 = 37,500; total 173,333
☐	Warehouse total cost 10,533,333 includes engineering 360,000 AND capitalized interest
☐	Component split 2,106,667 / 8,426,666; residual 1,800,000 only in the building calculation
☐	No warehouse depreciation in 2025; 2026 = 158,000 + 198,800 = 356,800 (9/12)
☐	Loan interest after Mar 31, 2026 expensed (Feb 1/26 payment split 12,500 expense + 137,500 payable; Dec 31/26 pays 137,500)
☐	Every entry dated; every figure traceable to a computation shown in the analysis

13. Self-Test: Reproduce AceSpin Cold

Cover §6–§7. For each prompt, produce the number; every one should land exactly.

Prompt	Answer to hit
PV of the three equipment payments at 5%	3,691,315 (1,270,000 + 1,609,524 + 811,791)
Total equipment cost	3,843,315
Annual / 2025 equipment depreciation	206,221 / 189,036
2025 note accretion; balance after Jan 1, 2026 payment	121,066; 852,381
2026 note accretion (proof it works)	42,619 (852,381 + 42,619 = 895,000)
2025 capitalized interest (gross → net)	137,500 − 1,667 = 135,833
2026 capitalized interest; total capitalized	37,500; 173,333
Total warehouse cost	10,533,333 (10,000,000 + 360,000 + 173,333)
Component allocation 20 / 80	2,106,667 / 8,426,666
2026 warehouse depreciation (roof + building)	158,000 + 198,800 = 356,800
Lifetime loan interest: capitalized vs expensed	287,500 = 173,333 + 114,167

Source: AFM 291 Week 9 PBL: AceSpin Inc. and official sample solution (© 2026 D. Psutka & R. Ducharme); figures follow the sample solution's rounding. Cross-references “Core §” point to the Week 9 Core Study Document (V4).

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