A firm may retire an asset from service by trading it in on a new asset.U.S.GAAP and IFRS require that firms record a trade-in that lacks commercial substance at
A)present value of future cash flows.
B)replacement value.
C)liquidation value.
D)the carrying value of the exchanged asset.
E)undiscounted cash flows.

Question

Quizplus · Accepted Answer

Both U.S. GAAP and IFRS require that firms record a trade-in that lacks commercial substance at the carrying value of the exchanged asset. This means that the value recorded for the new asset will be the carrying value of the old asset, which is the historical cost of the asset less any accumulated depreciation. This treatment ensures that the overall value of the company's assets remains unchanged, and that the transaction does not produce any gains or losses on the income statement.

A Firm May Retire an Asset from Service by Trading