Exercise 10-18 Account Titles and Explanation Debit Credit Account Titles and Ex

Question

Exercise 10-18

Account Titles and Explanation

Debit

Credit

Account Titles and Explanation

Debit

Credit

SHOW LIST OF ACCOUNTS

Account Titles and Explanation

Debit

Credit

Account Titles and Explanation

Debit

Credit

Exercise 10-18

Blossom Limited exchanged equipment that it uses in its manufacturing operations for similar equipment that is used in the operations of Ayayai Limited. Blossom also paid Ayayai $2,800 in cash. The following information pertains to the exchange.
Blossom Ayayai Equipment (cost) $48,500 $53,500 Accumulated depreciation 30,250 21,000 Fair value of equipment 26,000 28,800

Explanation / Answer

1. Ecxhange has commercial substance - Gain or loss is recognised

Blossom Limited

To remove all accounts related to the old equipment and cash, set up the new equipment at its fair value, and record the balancing Gain.

Ayayi Limited

Equipment (old)

To remove all accounts related to the old equipment and cash, set up the new equipment at its fair value, and record the balancing loss.

53500

2. Exhange has no commercial substance - Gain or Loss is nor recogised. If any gain or loss arises it is adjusted in the new equipment acquired on exchange.

Blossom Limited

To remove all accounts related to the old equipment and cash, set up the new equipment at lowered fair value.

Ayayi Limited

Particulars Debit Credit Accumulated Depriciation 30250 Equipment (new at FV) 28800 Cash 2800 Equipment (old) 48500 Gain 7750

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