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Hailstorm Ireland exchanged a three-year-old truck for a new truck that had a list price of...

Question

Hailstorm Ireland exchanged a three-year-old truck for a new truck that had a list price of...

Hailstorm Ireland exchanged a three-year-old truck for a new truck that had a list price of $50,000, which was its fair value

Hailstorm Ireland exchanged a three-year-old truck for a new truck that had a list price of $50,000, which was its fair value. The old truck originally cost $65,000 and has accumulated depreciation of $25,000 to the date of exchange. In addition to the $45,000 trade-in given for the old truck, HI paid $8,000 cash to complete the deal Record the asset exchange with all necessary calculations Refer to the class lecture, elaborate the accounting procedures involved for asset disposal through discarding, selling, or exchanging an asset.

Answers

The entry to be passsed in the books for the above transaction

Delivery Truck $ 50,000.00
Accumulated depreciation $ 25,000.00
Cash        8,000.00
Old Truck $ 65,000.00
Profit on sale of Asset        2,000.00

Notes

Fair Value of new Truck $ 50,000.00
Original cost of old Truck $ 65,000.00
Accumulated depreciation $ 25,000.00
WDV as on the date of exchange $ 40,000.00
Purchase consideration for new Truck
Trade in     45,000.00
Cash Paid        8,000.00
Total Cost $ 53,000.00
Calculation of Profit on sale of asset
a Value of Old Truck $ 40,000.00
b Trade in Value     45,000.00
c Capital gain $   5,000.00 b-d
d Fair value of deliver Truck $ 50,000.00
e Puchase considerarion paid $ 53,000.00
f Loss on the same $ -3,000.00
g Profit from the transaction to be recogonised $   2,000.00

Accounting Procedure for Discarding Asset

In case of discarding the asset, we remove the value of asset and accumulated depreciation from the books of accounts.

In the above case the entry will be

Accumulated Depreciation ........25000

Loss on disposal of asset..........40000

To Truck................................................65000

( As the asset has not been fully depreciated there will be loss of imapirment)

Accounting Procedure for Selling an asset

The amount received as purchase consideration has to be debited to cash account and the value of the asset has to be credited.

In the above case assuming the whole sales consideration was received in cash and no exchange has taken place:

Cash ...................................45000

Accumulated Depreciation..... 25000

To Truck................................................65000

To Gain on Sale of Asset.........................5000

Accounting Procedure for Selling an asset

In case of the exchange of asset

  1. Recogonise the fair value of the asset in the books
  2. Debit accumulated depreciation
  3. Credit any extra payment made to acquire the new asset
  4. Credit the Asset account
  5. Recogonise the profit / loss on exchange


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