When an asset is exchanged for a similar asset and a gain results, under accounting rules the gain is:

Question

Quizplus · Accepted Answer

When an asset is exchanged for a similar asset and a gain results, the gain is absorbed into the cost of the new asset. This treatment prevents the recognition of the gain in the income statement, reflecting the continuation of the investment in a similar asset rather than a realization of gain.

When an Asset Is Exchanged for a Similar Asset and a Gain