Question

2. How would you interpret this ratio? its for this aasiri 110-14 Normonetary exchange 1010-6 Cedric Company recently traded in an older model of equipment for a new model. The old model's book value was $180,000 (original cost of $400,000 less $220,000 in accumulated depreciation) and its fair value was $200,000. Cedric paid $60,000 to complete the exchange which has commercial substance. Required: Prepare the journal entry to record the exchange. 110-15 Hormonetary [This is a variation of the previous exercise.] Renula

Answer 1

Original cost of the older equipment = $400,000

Accumulated depreciation = $220,000

Book value of equipment = $ 180,000

Fair value of the asset = $ 200,000

1.Journal entry:

                      Particulars                                              Debit                        Credit

New model's equipment A/c _Dr      240,000              

            To Older model's equipment A/c                       180,000       To Cash A/c       60,000   

[Being New equipment exchanged for old Equipment and 60,000 excess amount paid]

Note: Historical cost of the asset is $180,000 and the fair value is $200,000, in this case we have gain of $ 20,000 as compare with the market value.It won't be added to value of the asset due to as per books of accounts real value of the asset is carried forward at $180,000 so we consider the same and excess amount payment $ 60,000 debited to new equipment.

If not, we can recognize $20,000 as gain of the asset then it will be credited to profit and loss account and the same is debited to asset.In this case, new equipment value is debited with $260,000 and older equipment is credited with $200,000.