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 market value of the old asset.
C) book value of the asset acquired.
D) fair market value of the new asset.

Question

Quizplus · Accepted Answer

When an exchange of assets has commercial substance, the cost of the new asset is equal to the fair market value of the old asset plus any cash paid. Therefore, choice B (fair market value of the old asset) is the correct answer. The book value of the old asset, book value of the asset acquired, and fair market value of the new asset are not relevant in determining the cost of the new asset in this scenario.

The Cost of a New Asset Acquired in an Exchange