When assets are exchanged in a transaction involving commercial substance, how is the gain or loss...

When assets are exchanged in a transaction involving commercial substance, how is the gain or loss on disposal of plant assets computed?

Expert Solution

--The gain or loss on asset exchanged in transaction involving commercial substance is calculated as shown below:

A	Fair Value of new asset received
	*LESS:*
	Original Cost of asst given up in exchange
	Less: Accumulated Depreciation on that asset
B	Book Value of Asset exchanged
C	Cash paid, if any
D = A - B - C	Gain (Loss) on exchange

Lets, take an example.

A	Fair Value of new asset received		$ 112,500
	*LESS:*
	Original Cost of asst given up in exchange	$ 144,000
	Less: Accumulated Depreciation on that asset	$ 60,000
B	Book Value of Asset exchanged		$ 84,000
C	Cash paid, if any		$ 22,500
D = A - B - C	Gain (Loss) on exchange		$ 6,000

ekkarill92 answered 2 years ago

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