ABC Catering, purchased equipment for $ 12 comma 000. ABC recorded total depreciation of $ 9 comma 000 on the equipment. Assume that ABC exchanged the old equipment for new equipment, paying $ 3 comma 200 cash. The fair market value of the new equipment is $ 5 comma 800. Journalize ABC's exchange of equipment. Assume this exchange has commercial substance

New Equipment $5,800 (debit)

Old Equipment - Accumulated depreciation $9,000 (credit)

Old Equipment at Cost $12,000 (credit)

Gain on echange of Equipment $2,800 (credit)

Explanation:

Accoring to IAS 16 :

If a transaction has a commercial substance,

Acquired Equipment is measured at fair value of asset given up. ( if fair values of acquired and given up asset can be determined reliably)

If fair value of Asset Acquired is more evidentn then Asset acquired is measured at fair value of Asset Acquired.

JOURNAL

New Equipment $5,800 (debit)

Old Equipment - Accumulated depreciation $9,000 (credit)

Old Equipment at Cost $12,000 (credit)

Gain on echange of Equipment $2,800 (credit)

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