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n200080 [17]
3 years ago
6

Horton Stores exchanged land and cash of $5,000 for similar land. The book value and the fair value of the land were $90,000 and

$100,000, respectively. Assuming that the exchange has commercial substance, Horton would record land—new and a gain/(loss) on exchange of assets in the amounts of: Land Gain/(loss) a. $ 105,000 $ 0 b. $ 105,000 $ 10,000 c. $ 95,000 $ 0 d. $ 95,000 $ 10,000
Business
1 answer:
Anuta_ua [19.1K]3 years ago
5 0

Answer:

c. $ 95,000 $ 0

Explanation:

<u>Calculation of cost of land acquired</u>

For the purpose of recording of land acquired in the books of accounts, the accounting values of consideration paid shall be considered as per the generally accepted accounting principles as well as as per International accounting standard (IAS) - 16 'Property, plant and equipment'. Hence the land shall be recorded as per the following amounts:

Consideration paid in cash (A) = $ 5,000

Consideration in kind (land) (B) = $ 90,000 (Refer Note 1)

Total cost of new land (A+B) = $ 95,000

<em>Note 1</em>

Fair value is irrelevant for the purpose of capitalization of asset (IAS-16)

<u>Calculation of Gain/loss on disposal of land</u>

No gain/loss needs to be recorded as the new asset shall be recorded in terms of the book value of old asset (i.e. net impact is already taken into account during the exchange transaction)

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