Charm Co owns a delivery truck with an original cost of 1000

Charm Co. owns a delivery truck with an original cost of $10,000 and accumulated depreciation of $7,000. Charm acquired a new truck by exchanging the old truck and paying $2,000 in cash. The new truck has a fair value of $5,000 at the time of the exchange. What amount of gain or loss should Charm recognize?

$3,000 loss.

$0

$2,000 gain.

$2,000 loss.

Solution

The amount of Gain or loss arises to charm is $0.
Calculation:-
Cost of Old truck = $10000
Less: Accumulated dep. = $7000
W.D.V of old truck = $3000

Cash paid to buy new truck along with old truck = $2000
Total consideration = $3000 of old truck + $2000 cash = $5000

Fair value of new truck = $5000.
Hence there is no difference in the value of consideration and the fair value of truck. So there is no profit no loss.