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3 August, 19:35

If a fixed asset with a book value of $10,000 is traded for a similar fixed asset, a trade-in allowance of $15,000 is granted by the seller and the transaction is deemed to have commercial substance, the buyer would report a gain on exchange of fixed assets of $5,000. (True/False)

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  1. 3 August, 19:50
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    FALSE

    The statment is false, the gain is 15,000

    Explanation:

    When there is commercial substance the exchange of long-term assets will recognize a gain or a loss on exchange.

    When there isn't the diference will be adjusted using the value of the new asset.

    In this case we have commercial substance, so the buyer will report a gain on exchange for 15,000 which is the allowance made by the seller.

    The value has 15,000 trade-in allowance. Which means it value is for 25,000

    So the diference between the current fixed asset and the new one is 15,000

    25,000 - 10,000 = 15,000

    The statment is false, the gain is 15,000
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