I know the answer is C. What are the ways to compute the cost of the Equipment r
ID: 341896 • Letter: I
Question
I know the answer is C. What are the ways to compute the cost of the Equipment received in the cases when the exchange lacked commercial substance?
Why sometimes to compute the cost of Equipment received the Book Value of Equipment given up is used, but sometimes its Fair Value (of the same asset that we gave up) ?
Thank you. On December 1, 2017, Kelso Company acquired new equipment in exchange for old equipment that it had acquired in 2014. The old equipment was purchased for $210,000 and had a book value of $79,800. On the date of the exchange, the old equipment had a fair value of $84,000. In addition, Kelso paid $273,000 cash for the new equipment, which had a list price of $378,000. The exchange lacked commercial substance. At what amount should Kelso record the new equipment for financial accounting purposes? a. $273,000o. b. $352,800 c. $357.,000 d. $378,000 107.
Explanation / Answer
The answer is C as also pointed out by you.
As per the relevant Accounting standard, when an exchange lacks commercial substance, the way to compute the cost of the equipment is to recognise it at the fair value of the asset of the asset given or the amount of cash or cash equivalent paid.
The book value of the asset given up will be used only when its fair value is not given.Otherwise, in every situation, fair value will be used.