Part exchange
A part exchange uses an existing asset as part of the consideration for a replacement. Account separately for derecognition of the old asset and recognition of the new asset. Where the trade-in allowance represents fair value under the question’s assumptions, compare it with the old asset’s carrying amount to calculate the disposal gain or loss. The new asset’s cost includes the qualifying cash and non-cash consideration.
Worked example
An old machine has carrying amount $2,000 and a fair-value trade-in allowance of $2,500. Paying a further $7,500 for the replacement gives new-asset cost of $10,000 and disposal gain of $500.
Common mistake
Comparing the trade-in allowance with the old asset’s original cost instead of its carrying amount.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | F1 | Supporting | July 2027–August 2028 |
| ACCA | FA | Direct | September 2026–June 2027 |
| ACCA | K1 | Direct | July 2027–August 2028 |
| FIA | FFA | Direct | September 2026–June 2027 |
Related terms
Also called: trade-in