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4 January, 20:05

An automobile costs $60,000 when new and has accumulated depreciation of $35,000. Suppose the automobile is exchanged for a new automobile. The new automobile has a market value of $70,000 and we pay $45,000 in cash. Assume the exchange has commercial substance. What is the result of this exchange?

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  1. 4 January, 22:38
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    no gain or loss

    Explanation:

    Cost of the old car: $ 60,000.00

    Depreciation to date: $ 35,000.00

    Current book value : = $ 60,000.00 - $ 35,000.00

    = $ 25,000.00

    New car value: $ 70,000.00

    Paid amount in cash : $ 45,000.00

    difference : = $ 70,000.00.-45,000.00

    = $ 25,000

    Commercial gain or loss equal: book value of the old car - the difference in the value of new car and amount paid in cash

    = $25,000-$25,000=0 (no gain or loss)
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