The King-Kong Corporation exchanges one plant asset for another plant asset and gives cash in the exchange. The exchange is not expected to cause a material change in the future cash flows for either entity. If a gain on the disposal of the old asset is indicated, the gain will

Question

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When a company exchanges one plant asset for another and gives cash in the exchange, without expecting a material change in future cash flows for either entity, any indicated gain on the disposal of the old asset is deferred and effectively reduces the amount to be recorded as the cost of the new asset. This treatment prevents the immediate recognition of the gain in the income statement, aligning with the principle of conservatism in accounting.

The King-Kong Corporation Exchanges One Plant Asset for Another Plant