Skip to document
Welcome to StudocuSign in to access the best study resources
Guest user
0followers
HomeMy LibraryAsk AI
  • You don't have any recent items yet.
My Library
  • You don't have any courses yet.
  • You don't have any books yet.
  • You don't have any Studylists yet.

Lecture Documents Accounting - Exchange OF Fixed Assets

Lecture Documents Accounting - Exchange OF Fixed Assets
Course

Intro To Accounting (AC 210)

316 Documents
Students shared 316 documents in this course
Academic year: 2023/2024
Uploaded by:
Anonymous Student
This document has been uploaded by a student, just like you, who decided to remain anonymous.
University of Alabama

Recommended for you

Comments

Please sign in or register to post comments.

Students also viewed

Related documents

Preview text

EXCHANGE OF FIXED ASSETS

The exchange of fixed assets occurs frequently in practice, since companies usually want to constantly refine their assets in order to be able to compete with other companies. The cost of fixed assets is measured by the amount of cash paid in cash transactions, or by the fair value of assets received or delivered, whichever is lower. To simplify, the fair value of an asset is usually set at the market price of the asset at the time of the exchange. Thus, if there is an exchange, the general rules that must be followed are as follows : 1. The acquisition price of the asset (New) received is the market price of the asset (old) delivered in addition to the cash paid. 2. Exchange profit or loss is the difference between the market price and the book value of the asset delivered. This rule is generally accepted, whether the exchange occurs between similar or dissimilar assets. However, there is one exception, which is when the exchange is made between similar assets and obtained a profit. Exchange between non-similar assets exchange between non- similar assets can involve a wide variety of assets. For example, suppose that transport equipment is exchanged for land, or a car is exchanged for factory machinery. In the event that there is an exchange of assets that are not similar, the new assets obtained have different functions from the assets submitted. Therefore, profit or loss must be recognized if an exchange occurs between assets that are not of the same type. Treatment when profit is obtained to describe the accounting treatment if profit is obtained in the exchange of assets that are not similar, for example CV. Krasik decided to exchange the old transportation equipment plus

rp31, 000, 000 cash for a plot of land that would be used for the construction site of the factory building. Currently, the book value of the old transportation equipment is Rp12, 000, 000 (Rp40, 000, 000 minus accumulated depreciation of Rp28, 000, 000). The market price of the old transportation equipment to be exchanged is Rp19, 000, 000. Thus the acquisition price of land is Rp50, 000, 000 which is calculated in the following way: market price of old transportation equipment......................................................., 000, 000 cash paid.................... ..................................................................... 31,000,000. 00 land acquisition price.................................................................................., 000, 000 profit in this exchange is Rp7, 000, 000 which is calculated in the following way : Market price of old transport equipment........................................................., 000, 000 book value of old transportation equipment:(Rp40, 000, 000.00-Rp,000,000. 00) 2,000,000. 00 profit pertukaran............................................................................................. 7.000, 00 Journal to record the above transactions are as follows: Land ........................................................., 000, 000 Accumulated Depr. - Equipment................................28. cash....................................................................................................... 31.000 Transport Equipment..................................................................... 40,000,000 fixed assets exchange profit .................................................. 7,000, (to record the exchange of transportation equipment with land) treatment in case of loss if the market price of old transportation equipment is only Rp,000,000.

exchange of the old asset brings profit, the profit must be treated as a deduction from the acquisition price of the new asset (so it is not credited as exchange profit) 2. If the exchange of old assets results in a loss, the loss can be recognized immediately as in accounting for the exchange of non-similar assets. Treatment when profit is obtained is not recognized because the new assets have the same function as the old assets. Thus the process of obtaining profits on old assets is considered unfinished. Therefore, the profit obtained from the exchange of similar assets must be deferred by lowering the acquisition price of new assets. To give an idea of accounting for the exchange of similar assets for profit, suppose CV Kapuas exchanges old transportation equipment for new transportation equipment. The book value of the old equipment is Rp12, 000. 000 (acquisition price Rp40, 000, 000 minus accumulated depreciation Rp28. 000, 00), while the market price of Rp19.000, 00 and cash to be paid Rp31.000, 00. The price of new equipment (before deducting exchange profit) is Rp50, 000, 000 obtained by calculating as follows: market price of old transportation equipment..................................................... 19.000, 00 cash paid... ................................................................................. ....,000,000 acquisition price of new equipment (before deducting exchange profit) Rp50, 000, 000 exchange profit is calculated as follows : market price of old equipment...................................................................... 19,000,000. 00 book value of old equipment (Rp 40,000,000. 00 – Rp 28,000,000. 00) Rp 12,000,000. 00 exchange profit.......................................................................................... Rp 7.000,

exchange profit mentioned above, then deducted against the acquisition price of new assets, so that the acquisition price of new assets can be determined (after deducting the exchange profit) which will be recorded in the books. Acquisition price of new equipment (before deducting exchange profit.. 50,000,000. 00 minus: exchange profit.............................................................................. 7,000,000 .00 acquisition price of new equipment ( net of exchange profit.. 43,000,000. 00 The Journal to record the above transactions is as follows : transportation equipment (new).................................................................. Rp 43.000, 00 Accumulated Depreciation Of Equipment ......................................................... Rp 28.000, 00 New Transport Equipment (old)......................................... Rp 40.000, 00 Cash........................................................................................ Rp 31.000, 00 (to record the exchange of old transportation equipment with new transportation equipment) the above Journal does not negate the profit obtained, but merely postpones or suspends it to the next period. Therefore, the profit for the next period will be higher, depreciation of new transport equipment recorded at a lower Rp. 7.000,00 (Rp.50.000,00-Rp,000,000) from the actual acquisition price. If the company suffers a loss in the exchange of similar fixed assets, the transaction is recorded in the same way as the exchange of non-similar assets. In this case, the loss is not deferred, but immediately recognized in the period in question. Accounting principles do not allow to delay the recognition of losses, because it will raise the price perole han new assets above the market price (which is seen as improper treatment)

Was this document helpful?

Lecture Documents Accounting - Exchange OF Fixed Assets

Course: Intro To Accounting (AC 210)

316 Documents
Students shared 316 documents in this course

University: University of Alabama

Was this document helpful?
EXCHANGE OF FIXED ASSETS
The exchange of fixed assets occurs frequently in practice, since companies
usually want to constantly refine their assets in order to be able to compete with
other companies. The cost of fixed assets is measured by the amount of cash paid
in cash transactions, or by the fair value of assets received or delivered, whichever
is lower. To simplify, the fair value of an asset is usually set at the market price of
the asset at the time of the exchange. Thus, if there is an exchange, the general
rules that must be followed are as follows : 1. The acquisition price of the asset
(New) received is the market price of the asset (old) delivered in addition to the
cash paid. 2. Exchange profit or loss is the difference between the market price
and the book value of the asset delivered. This rule is generally accepted, whether
the exchange occurs between similar or dissimilar assets. However, there is one
exception, which is when the exchange is made between similar assets and
obtained a profit. Exchange between non-similar assets exchange between non-
similar assets can involve a wide variety of assets. For example, suppose that
transport equipment is exchanged for land, or a car is exchanged for factory
machinery. In the event that there is an exchange of assets that are not similar, the
new assets obtained have different functions from the assets submitted. Therefore,
profit or loss must be recognized if an exchange occurs between assets that are not
of the same type. Treatment when profit is obtained to describe the accounting
treatment if profit is obtained in the exchange of assets that are not similar, for
example CV. Krasik decided to exchange the old transportation equipment plus

Students also viewed

Related documents