Question

sle Co. owned a copy machine that cost $5,000 and had accumulated depreciation of $2,000. Isle exchanged the copy machine for a computer that cost $4,000. Isle's future cash flows are not expected to change significantly as a result of the exchange. What amount of gain or loss should Isle report and at what amount should it record the asset?

Answer 1

Answer:

In the income statement, there is no loss or gain and assets worth $3,000 is recorded in the balance sheet.

Explanation:

Exchange of non- monetary assets which is not expected to change the cash flows of the entity significantly lacks the commercial substance.

The accounting for exchange is grounded on the carrying amount of the assets given up, unless the boot is received so there is no gain recognized.

The asset named computer is recognized at the amount of carrying value of the copy machine amounts to $3,000.

Working Note:

Asset value = Cost of machine - Accumulated Depreciation

= $5,000 - $2,000

= $3,000