Question

*E9-18 Presented below are two independent transactions. Both transactions have com- mercial substance. 1. Global Co. exchanged old trucks (cost £64,000 less £22,000 accumulated depreciation) plus cash of £17,000 for new trucks. The old trucks had a fair value of £37,400. 2. Rijo Ltd. trades its used machine (cost £12,000 less £4,000 accumulated depreciation) for a new machine. In addition to exchanging the old machine (which had a fair value of £9,000), Rijo also paid cash of £3,200. Instructions (a) Prepare the entry to record the exchange of assets by Global Co. (b) Prepare the entry to record the exchange of assets by Rijo Ltd.

Answer 1

Answer
Sr. No	Account and Explanation	Debit	Credit
1	New truck (£ 17,000 + £ 37,400)	£ 54,400
	Accumulated depreciation	£ 22,000
	Loss on exchange (working note A)	£ 4,600
	Old truck		£ 64,000
	Cash		£ 17,000
	(To record exchange of new vehicle with old vehicles)
2	New Machine (£ 9,000 + £ 3,200)	£ 12,200
	Accumulated depreciation	£ 4,000
	Gain on exchange (working note B)		£ 1,000
	Old Machine		£ 12,000
	Cash		£ 3,200
	(To record exchange of new Machine with old Machine)
Working Notes :
A.	Loss on exchange = Book value - Fair market value
	((£ 64,000 - £ 22,000) - £ 37,400))
	£ 4,600
B.	Gain on exchange = Book value - Fair market value
	((£ 12,000 - £ 4,000) - £ 9,000))
	£ 1,000