Question

QUESTION 1

Wille Co. trades a used truck for a used car. The trade has been decided to have commercial substance. The used truck had an original cost of $10,000 and accumulated depreciation of $7,500. The used truck has a fair value of $8,000. In addition to the truck, you must pay 2,000. Calculate the amount of gain that will be recognized.

QUESTION 2

Wille Co. trades a used truck for a used car. The trade has been decided to lack commercial substance. The used truck had an original cost of $15,000 and accumulated depreciation of $7,500. The used truck has a fair value of $11,000. The car has a fair value of $9,000. In addition to the car, you receive $2,000. Calculate the amount of gain that will be recognized.

Answer 1

• All working forms part of the answer
• Question 1

Accumulated Depreciation	$              7,500.00
Fair Value of used Truck	$              8,000.00	$           15,500.00
Less:
Cost of Truck	$            10,000.00
Additional cash paid	$              2,000.00	$           12,000.00
Gain that will be recognised		$             3,500.00

• Question 2

Accumulated Depreciation	$              7,500.00
Fair Value of Car	$              9,000.00
Cash to be received	$              2,000.00	$                      18,500.00
Less:
Original cost of truck		$                      15,000.00
Gain that will be recognised		$                       3,500.00