Question

13. Equipment that cost $659000 and has accumulated depreciation of $289000 is exchanged for equipment with a fair value of $480000 and $120000 cash is received. The exchange lacked commercial substance. What amount of the gain is to be recognized from the exchange

Answer 1

The amount of gains that are to be considered for exchange of the equipment will be around $46,000.

What are gains?

The excess amount benefitted from a financial transaction are known as gains. Using the information above, the gains will be calculated as:

$\rm Gains= (Fair\ Value+ Cash\ Received) - (Cost- Depreciation\ Value)\\\\\rm Gains=600000-370000\\\\\rm Gains=230000$

However, the actual realized gains for the exchange of equipments will be as:

$\rm Realizable\ Gains\ = 230000\ x\ \dfrac{120000}{600000}\\\\\rm Realizable\ Gains\ = \ 46000$

Hence, the gains realized from the exchange of equipment will be $46,000.

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