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A fixed asset with a cost of $41,000 and accumulated depreciation of $36,000 is traded for a similar asset priced at $50,000 (fair market value) in a transaction with commercial substance. Assuming a trade-in allowance of $4,000,at what cost will the new equipment be recorded in the books?

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agustinsr99

Answer: The cost of the new equipment is $50 000.

Explanation: Gains are not recognized in exchanges of similar fixed assets, the cost of the new asset is adjusted to reflect the gain :

Book value = 41000 - 36000 = 5000

Gain or loss = 4000 - 5000 = -1000 Lost.

Cost of the new asset = Price - Unrecognized earnings.

As there are no unrecognized gains, the cost of the new asset is = 50,000.

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