Question

Page Break Q1. (25 marks) Hailstorm Ireland exchanged a three-year-old truck for a new truck that had a list price of $50,000, which was its fair value. The old truck originally cost $65,000 and has accumulated depreciation of $25,000 to the date of exchange. In addition to the $45,000 trade-in given for the old truck, HI paid $8,000 cash to complete the deal. Record the asset exchange with all necessary calculations Refer to the class lecture, elaborate the accounting procedures involved for asset disposal through discarding, selling, or exchanging an asset.

Answer 1

Accounting procedure states that report new asset at Fair value in the exchange for old asset. The old asset which is exchanged should be recorded at book value as it is eliminated from books of accounts. A gain or loss to be realised in the deal of exchange that must be reported in the financial books.

In this scenario, Hailstorm Ireland has bought new truck with list price of $50,000 in exchange of old truck with trade value of $45,000 plus additional cash of $8,000. As they exchanged their both assets of old truck and cash in Total of $53,000 for new Truck worth of $50,000, where they suffer loss of $3,000.

However, net book value of old truck was $40,000 (net book value after considering accumulated depreciation $65000 - $25,000) which has been traded for $45,000, since here they have recognized gain worth $5,000.

Then net gain on exchange transaction is $2,000 ($5,000 - $3,000)

Journal Entry for exchange transaction as below

Particulars	Debit ($)	Credit ($)
Truck (New) A/c…..........................Dr	50,000
Accumulated Depreciation A/c…....Dr	25,000
To Truck (Old)		65,000
To Cash		8,000
To Gain on Exchange of Truck		2,000
Removing old truck from books and cash paid in exchange of new Truck at list price and reported Gain.