The cost of a new asset acquired in an exchange that has commercial substance is the cash paid plus the
A) book value of the old asset.
B) fair value of the old asset.
C) book value of the asset acquired.
D) fair value of the new asset.

Question

Quizplus · Accepted Answer

When a new asset is acquired in exchange that has commercial substance, the cost of the new asset is the fair value of the old asset plus any cash paid. This is based on the principle of fair value accounting, which requires that assets are recorded at their fair value on the balance sheet. Therefore, choice B, which states that the cost is the fair value of the old asset, is the best choice.

The Cost of a New Asset Acquired in an Exchange