If a fixed asset with a book value of $10,000 is traded for a similar fixed asset, a trade-in allowance of $15,000 is granted by the seller, and the transaction is deemed to have commercial substance, the buyer would report a gain on exchange of fixed assets of $5,000.

Question

Quizplus · Accepted Answer

The gain on exchange of fixed assets would be calculated as follows:
Fair value of new asset received: $15,000
Book value of old asset given up: $10,000
Gain on exchange: $5,000

Since the transaction is deemed to have commercial substance (meaning the buyer's future cash flows will be significantly affected by the transaction), the gain should be recognized in the buyer's financial statements.

If a Fixed Asset with a Book Value of $10,000