If a fixed asset with a book value of $10,000 is traded for a similar fixed asset, and a trade-in allowance of $15,000 is granted by the seller, if the transaction is deemed to have commercial substance, the buyer would report a gain on disposal of fixed assets of $5,000.

Question

Quizplus · Accepted Answer

When a transaction has commercial substance, the gain or loss is recognized. The gain is calculated as the difference between the trade-in allowance ($15,000) and the book value of the old asset ($10,000), resulting in a $5,000 gain.

If a Fixed Asset with a Book Value of $10,000