--The gain or loss on asset exchanged in transaction involving
commercial substance is calculated as shown below:
|
A |
Fair Value of new asset received |
|
|
LESS: |
|
|
Original Cost of asst given up in exchange |
|
|
Less: Accumulated Depreciation on that asset |
|
B |
Book Value of Asset exchanged |
|
C |
Cash paid, if any |
|
D = A - B - C |
Gain (Loss) on exchange |
Lets, take an example.
|
A |
Fair Value of new asset received |
|
$
112,500 |
|
|
LESS: |
|
|
|
|
Original Cost of asst given up in exchange |
$
144,000 |
|
|
|
Less: Accumulated Depreciation on that asset |
$
60,000 |
|
|
B |
Book Value of Asset exchanged |
|
$
84,000 |
|
C |
Cash paid, if any |
|
$
22,500 |
|
D = A - B - C |
Gain (Loss) on exchange |
|
$
6,000 |
