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what is the accounting treatment for exchange of assets?
For example; an asset with a nbv of 2000 is exchanged for a asset with fair value of 1500, then the accounting treatment is:
Dr asset: 1500
Dr receivable:500
Cr asset: 2000
Am i right?
And in the situation that there is a value added tax ,say 200. How should it be accounted for?hi duc169,
Assuming that by ‘fair value’ you mean that it is the cash amount which is paid for new asset and trade in allowance is zero:
To recognize the purchase of new asset:
Dr Asset a/c 1300 (if it includes 200$ input tax)
Dr Tax a/c ( a liability account) 200
Cr Cash 1500
if the trade in allowance for your old asset is zero this means that u have received nothing for your old asset so this comes to straight away loss of (2000(NBV) – 0(trade-in allowance) = 2000 which will be debited to income statement in the relevant accounting period.
As u haven’t mentioned the cost and accumulated depreciation of asset at that time of sale assuming that $3000 was cost and $1000 was accumulated depreciation then:
Dr accumulated depreciation 1000
Dr loss on exchange of asset(I/S) 2000
Cr cost a/c 3000Hope this helps!
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