Answer:
Part 1
Debit :New Machine $55,000
Debit : Profit and Loss $39,400
Credit: Accumulated Depreciation: Old Machine $19,400
Credit :Cost: Old Machine $44,400
Credit : Cash $31,000
Part 2
Debit :New Machine $55,000
Debit : Profit and Loss $31,400
Credit: Accumulated Depreciation: Old Machine $19,400
Credit :Cost: Old Machine $44,400
Credit : Cash $23,000
Explanation:
The Standard on Property, Plant and Equipment States that :
"When exchange has commercial substance, Cost Price of item Acquired is measured at Fair Value.
When Fair Values of both assets acquired and given up can be determined reliably, the Fair Value of Asset given up will be used.
Unless the Fair Value of the Asset acquired is more evident, that Value may be used"
From this, we have on Fair Value of Asset Acquired, so we use that as the Cost of the New Asset. Cost of New Asset in Both Cases will be $55,000.
Recognize the New Cost of Asset, Derecognize the Cash Paid, Derecognize Cost of Old Asset and Accumulated Depreciation in a journal to find the Profit or loss resulting from the exchange as above.
