【正文】 cilitate sale to customers, or ? Exchange lacks of mercial substance ? Boot given ? Record asset received NBV of assets exchanged + Boot given ? No Gain recognized No Gain recognized because the earnings process is not considered plete ? If a loss is indicated by the terms of the transaction, the entire loss on the exchange should be recognized. b) Accounting treatment Exception ② ,③ + Boot given 45 C Nonmoary Exchange 13. Situation 9 Example 1: A machine with a FMV $12,000 (cost, $11,000。 Revenue Expenditures Capitalize vs. Expense Expense Capitalize Reduce ACC DEP Additions: increase quantity Improvement/ Replacement Increase life Increase usefulness Ordinary repair Extraordinary repair Increase life Increase usefulness √ √ √ √ √ √ To record capitalization Dr. Equipment Cr. Cash or A/P To record reduction of ACC DEP Dr. ACC DEP Cr. Cash or A/P To record expense Dr. Repair EXP Cr. Cash or A/P 58 F. Depreciation 59 F Depreciation 1. Introduction a) Annual charge to ine for asset use during the period b) The objective is to match asset cost with revenue produced c) Depreciation base = Cost – Salvage value (except for declining method) d) Change in depreciation method: change in accounting estimate e) Change in useful life or salvage value: change in accounting estimate Important: P239 60 F Depreciation 2. Straightline depreciation $10,000 asset, 4year life, $2,000 salvage value Example: Answer: Step 1: calculate annual depreciation Annual depreciation = (Cost – Salvage value) / No. of useful life = ($10,000 $2,000) / 。 Acc DEP, $4,000) and $3,000 in cash are traded for land. The configuration of C/F does not significantly differs after exchange Answer: Dr. Land $8,000 Dr. ACC DEP 6,000 Cr. Machine $11,000 Cr. Cash 3,000 To record land To calculate Land cost NBV of machine Add: Boot given Land $5,000 3,000 $8,000 Since FMV NBV, loss must be recognized before assets exchange Record asset received NBV of assets exchanged + Boot given To determine loss FMV of machine Less: NBV of machine Loss $5,000 7,000 $2,000 To record loss Dr. Loss $2,000 Cr. ACC DEP 2,000 Exception ② ,③ + Boot given 47 C Nonmoary Exchange 14. Situation 10 a) Conditions ? Exchange to facilitate sale to customers, or ? Exchange lacks of mercial substance ? Boot received ? Cost of asset received b) Accounting treatment Exception ② ,③ + Boot received NBV of assets exchanged Less: Boot received Add: Gain recognized Asset received ? Partial of gains could be recognized Recognized gain = Boot received Boot received + FMV of asset received X Total gain 48 C Nonmoary Exchange 14. Situation 10 Example: A machine with a FMV $12,000 (cost, $11,000。 Acc DEP, $3,000) is traded for land and $500 cash. Answer: Dr. Land $4,500 Dr. ACC DEP 3,000 Dr. Loss 2,000 Dr. Cash 500 Cr. Machine $10,000 FMV (machine) Less: NBV Loss $5,000 (7,000) $2,000 To record land (received) on B/S To calculate loss Asset exchanged Asset received FMV (machine) Less: boot received Land $5,000 (500) $4,500 To calculate Land cost Boot received Record asset received FMV of asset exchanged Boot given Recognize Loss since FMV exchanged NBV exchanged FMV 1 + Boot received 33 C Nonmoary Exchange 7. Situation 4: a) Conditions ? FMV exchanged is not determinable。Financial Accounting and Reporting 9: Fixed Assets 1 Fixed Assets A: Acquisition Costs (P229) B: Capitalization of Interest (P229231) C: NonMoary Exchange (P231235) D: Purchase of Group of Fixed Assets (P235235) E: Capital amp。 Acc DEP, $3,000) and $500 cash are traded for land. Answer: Dr. Land $5,500 Dr. ACC DEP 3,000 Dr. Loss 2,000 Cr. Machine $10,000 Cr. Cash 500 FMV (machine) Less: NBV Loss $5,000 (7,000) $2,000 To record land (received) on B/S To calculate loss Asset exchanged Asset received FMV (machine) Add: boot given Land $5,000 500 $5,500 To calculate Land cost Boot given Record asset received FMV of asset exchanged + Boot given Recognize loss since FMV exchanged NBV exchanged FMV 1 + Boot given 31 C Nonmoary Exchange 6. Situation 3 a) Conditions b) Accounting treatment FMV 1 + Boot received ? FMV of asset exchanged (given up) is determinable ? The transaction has mercial substance and is not to facilitate sale ? Boot received ? Record asset received FMV of asset exchanged Boot given ? G/L determination Boot received does not affect G/L calculation FMV exchanged Less: NBV exchanged G/L 32 C Nonmoary Exchange 6. Situation 3 Example: A machine with FMV of $5,000 (cost, $10,000。 Acc DEP, $4,000) and $3,000 in cash are traded for land. The configuration of cash flow does not significantly differs after exchange Answer: Dr. Land $10,000 Dr. ACC DEP 4,000 Cr. Machine $11,000 Cr. Cash 3,000 To record land To calculate Land cost NBV of machine Add: Boot given Land $7,000 3,000 $10,000 Record asset received NBV of assets exchanged + Boot given Exception ② ,③ + Boot given 46 C Nonmoary Exchange 13. Situation 9 Example 2: A machine with a FMV $5,000 (cost, $11,