An entity acquired an item of plant in exchange for an item of equipment. The equipment has a carrying amount of $15 000 and a fair value of $20 000. The journal entry to record the acquisition of the plant will show:

Question

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Since the fair value of the equipment given up is higher than its carrying amount, there is a gain on sale. The gain is calculated as the fair value of the equipment given up ($20,000) minus its carrying amount ($15,000), which equals $5,000. Therefore, the journal entry would be to debit Plant for its fair value and credit Equipment for its carrying amount of $15,000, and credit Gain on sale of equipment for $5,000.

An Entity Acquired an Item of Plant in Exchange for an Item