Question 2 15 marks On February 24 Delmar Company made an ag

Question 2 (15 marks) On February 24, Delmar Company made an agreement to exchange assets with anvother company. Delmar gave up equipment that had an original cost of $72,300. Delmar had recorded $37,500 in accumulated depreciation over its ownership of this equipment. The equipment had been given a fair value of $30.500 at the time of the exchange. In addition, Delmar paid $9,200 in cash to the ather company. Assume that IFRS and that the transaction has commercial substance. Instructions Prepare the journal entry to record the asset exchange on Deimar\'s books.

Solution

If an asset is acquired in exchange for another asset, the cost will be measured at fair value unless:

a. The exchange transaction lacks commercial substance

b. The fair value of asset given up or received is not reliably measurable.

The value of the asset is determined as fair value of asset given up. If the fair value of asset given up is not reliably measurable, then the fair value of asset received should be taken. Since in the given question the fair value of asset given up is given, the value of asset will be considered as fair value of asset given up i.e 30,500( Also in the question it is mentioned that the transaction as commercial substance)

Computation of Loss on exchange:

1. Accumulated depreciation will behaving credit balance. So it should be debited while exchange of asset.

2. Equipment will be having debit balance. So it should be credited while exchange of asset.

3. Cash paid represents cash outflow. So cash should be credited since cash will be having debit balance.

4. Loss represents debit balance and it is a balancing figure in the above transaction.

5. Fair Value of asset will be value for New asset having debit balance.

Journal Entry for Exchange of Asset
Particulars	Debit	Credit
New Asset (Fair Vlaue)	30,500.00
Accumulated Depreciation	37,500.00
Loss on exchange	13,500.00
Equipment		72,300.00
Cash		9,200.00