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Dear Sir,
I just finished my exam and there is one question about part exchange in examination that I am sure I did it wrong because I am not quite sure about the meaning of the question. Sorry that I can’t remember exactly the figure in question, the question told me the carrying amount at the time of exchange and said the exchange allowance is xxx and the cash paid for the new machine is xxxx. I didn’t quite understand what does it mean by exchange allowance would you mind explaining that?
Many thanks for your help!
Suppose you own a car and you decide to change it for a new car.
What you could do is sell the old car and receive cash and then pay out cash for the new car. However, what is common is that the company selling you the new car takes the old car off you and you just pay to them the cost of the new car less the amount they will give you for the old car. We call that part-exchange.
So suppose the new car normally costs $10,000 and they are prepared to pay you $1,000 for the old car. In that case you will give them the old car, take the new car, and only pay them the difference of $9,000.
Thank you so much for the explanation! So does that mean under this example, the exchange allowance is 1000?
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