ACG 2021
Fixed Assets & Intangible Assets
Exchanging Similar Fixed Assets
o Old equipment is often traded in for new equipment
having a similar use.
o The seller allows the buyer an amount for the old
equipment traded in called TRADE IN ALLOWANCE.
o The remaining balance – the amount owed is either paid
in cash or recorded as a liability – called BOOT
o Gains on Exchanges
 Not recognized for financial reporting purposes.
 When trade-in allowance exceeds the book value of
an asset traded in and no gain is recognized, the
cost recorded for the new asset can be determined
in either of two ways:
 Cost of new asset = List price + Unrecognized
gain
 Cost of new asset = Cash given + book value
of old
Example 12: New equipment is purchased with a list price of
$5,000, trade in allowance of old is $1,100, cost of old
equipment is $4,000, accumulated depreciation $3,200.
Record the entry.
Account
Debit
Credit
New
$
Asset800
Accumulated depreciation
$4,000
Asset
- old
$3,200
Example 13: New equipment is purchased with a list price of
$10,000, trade in allowance of old is $3,500, cost of old
Created by: M. Mari
Fall, 2007
Page 1 of 3
ACG 2021
Fixed Assets & Intangible Assets
equipment is $9,000, accumulated depreciation $6,000.
Record the entry.
 Losses on Exchanges
o For financial reporting purposes, losses are recognized on
exchanges of similar fixed assets.
o If trade in is less than the book value of the old equipment,
there is a loss
Example 14: New equipment is purchased with a list price of
$5,000, trade in allowance of old is $700, cost of old equipment
is $4,000, accumulated depreciation $3,200. Record the entry.
Account
Debit
Credit
New
$
asset700
Accumulated depreciation
Loss on 100
disposal
of asset
Asset - old
$3,200
$4,000
Example 15: New equipment is purchased with a list price of
$10,000, trade in allowance of old is $1,500, cost of old
equipment is $9,000, accumulated depreciation $6,000.
Record the entry.
Created by: M. Mari
Fall, 2007
Page 2 of 3
ACG 2021
Fixed Assets & Intangible Assets
Created by: M. Mari
Fall, 2007
Page 3 of 3