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5 September, 15:10

City Auto Parts recently traded in store fixtures. The exchange had commercial substance. The old fixtures had a cost of $48,000 and accumulated depreciation of $14,000. City paid $101,000 for the new store fixtures. These new fixtures had a market value of $117,000. There is a loss of $18,000 on this exchange. True or False

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  1. 5 September, 16:26
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    The correct option is true

    Explanation:

    The book value of the old fixtures at the date of exchange which is the cost less accumulated depreciation till date is computed thus:

    Book value of old fixtures=$48,000-$14,000=$34000

    Expected cash payable by the company for the new fixtures is the market value of the new fixtures minus the carrying value of the old fixtures.

    Expected cash=$117,000-$34,000=$83,000.00

    Loss on the exchange = cash paid - expected cash payable=$101,000-$83,000=$18000
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