Companies record a gain or loss on the exchange of plant assets because most exchanges have commercial substance.

Question

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When a company exchanges a plant asset for another, it usually involves a change in the future cash flows of the company, which means it has commercial substance. Therefore, companies record a gain or loss on the exchange to reflect the difference between the fair value of the new asset received and the book value of the old asset surrendered.

Companies Record a Gain or Loss on the Exchange of Plant