Answer:
(a) has commercial substance
J1
Electric wax melter 5,720 (debit)
Accumulated depreciation :old gas model 6,930 (debit)
Old gas model : cost 12,320 (credit)
Profit on exchange of old gas model 320 (credit)
J2
Electric wax melter 11,000 (debit)
Cash 11,000 (debit)
(b) lacks commercial substance
J1
Electric wax melter 5,390 (debit)
Accumulated depreciation :old gas model 6,930 (debit)
Old gas model : cost 12,320 (credit)
J2
Electric wax melter 11,000 (debit)
Cash 11,000 (debit)
Explanation:
In terms of IAS 16, if an exchange of non-monetary item has commercial substance the Asset Acquired is measured at the Fair Value of Asset Given up or Fair Value of Asset Acquired.
However if an exchange of non-monetary item lacks commercial substance the Asset Acquired is measured at Carrying Amount of Asset Given up and there would no be any gain or loss on the exhange of asset given up.
(a) has commercial substance
J1
Electric wax melter 5,720 (debit)
Accumulated depreciation :old gas model 6,930 (debit)
Old gas model : cost 12,320 (credit)
Profit on exchange of old gas model 320 (credit)
J2
Electric wax melter 11,000 (debit)
Cash 11,000 (debit)
(b) lacks commercial substance
J1
Electric wax melter 5,390 (debit)
Accumulated depreciation :old gas model 6,930 (debit)
Old gas model : cost 12,320 (credit)
J2
Electric wax melter 11,000 (debit)
Cash 11,000 (debit)
