Question 6.7: Exchange or part exchange of assets occurs frequently for it...
Exchange or part exchange of assets occurs frequently for items of property, plant and equipment. IAS 16 states that the cost of an item obtained through (part) exchange is the fair value of the asset received (unless this cannot be measured reliably)
Taking the example above assume that, instead of the machine being sold for $19,000, it was exchanged for a new machine costing $60,000, a credit of $19,000 being received upon exchange. In other words $19,000 is the trade-in price of the old machine. Now what are the relevant ledger account entries?
PLANT AND MACHINERY ACCOUNT
| $ | $ | ||
| Balance b/d | 110,000 | Plant disposal | 30,000 |
| cash$(60,000-19,000) | 41,000 | Balance c/d | 140,000 |
| Plant disposals | 19,000
|
|
|
| 170,000
|
170,000
|
||
| Balance b/d | 140,000 |
The new asset is recorded in the non-current asset account at cost $(41,000 + 19,000) = $60,000.
PLANT AND MACHINERY ACCUMULATED DEPRECIATION
| $ | $ | ||
| Plant disposals (20% of $30,000 for 2 years) | 12,000 | Balance b/d | 70,000 |
| Balance c/d | 58,000
|
|
|
| 70,000
|
70,000
|
||
| Balance b/d | 58,000 |
PLANT AND MACHINERY DISPOSALS
| $ | $ | ||
| Plant and machinery | 30,000 | Accumulated depreciation | 12,000 |
| I & E a/c (profit on disposal) | 1,000
|
Plant and machinery-part exchange | 19.000
|
| 31,000
|
31,000
|