Question

CORRECT ANSWER NEEDED ASAP THROUGH SPREADSHEET

During 20x4, an entity exchanged a hotel in exchange for an office building. Data

on the hotel is as follows:

Original cost $6,700,000

Accumulated depreciation 3,800,000

Fair value 3,500,000

The fair value of the office building is $3,400,000.

1. Assuming that the entity is a publicly accountable entity, prepare the

journal entry to record the asset exchange.

2. What would be the sole difference in the accounting treatment of the

exchange if the entity was a private company subject to ASPE?

Answer 1

1.Journal entry to Record asset exchange in publicly accountable entity.

   Fair value of Hotel at the time of Exchange=$3,500,000

Book value of Hotel at the time of Exchange= Original cost - Accumulated Depreciation

$6,700,000-$3,800,000=$2,900,000

Gain on disposal of hotel= fair value-book value

= $3,400,000-$2,900,000 =$5,00,000

Journal entry Amount in $

Office building a/c dr 3,400,000

Accumulated Depreciation a/c dr 3,800,000

   Hotel a/c(book value) cr 6,700,000

Gain on Disposal of hotel cr 5,00,000

(entry for exchange of hotel to office building)

2.Differnce in Accounting treatment of the exchange in a private company as per ASPE

The company will measure the asset received at whichever can be measured more reliably: Fair Value of asset given up or the Fair Value of the asset received.

However, if one of the following scenarios is true, then the asset acquired should be measured at the carrying amount of the asset given up if

.The  transaction lacks commercial substance.

. The transaction is an exchange of a product or property held for sale in the ordinary course of business for a product or property to be sold in the same line of business to facilitate sales to customers other than the  parties to the exchange

. Neither the fair value of the asset received nor the fair value of the asset given up is reliably measurable.