For financial accounting purposes, when an asset is traded in for a similar asset, a gain is reported if the trade-in allowance exceeds the book value of the asset traded in.

Question

Quizplus · Accepted Answer

A gain is typically recognized when the trade-in allowance (i.e. the value of the new asset received in exchange for the old asset) exceeds the book value (i.e. the net carrying value) of the asset traded in. This is because the company has received a larger value in exchange for an asset that had a lower recorded value on its books, resulting in a financial gain for the company. Therefore, the statement is true.

For Financial Accounting Purposes, When an Asset Is Traded in for a Similar