[AndreA]

I would appreciate any help!
What would be the journal entry in this case for Company A?
Assume No Commercial Substance, exchange of old truck Company A for a new truck Company B (no cash payment has been made)

Company A
FV?
CV 100,000
Depreciation 40,000

Company B
FV 50,000
CV 70,000

Dr: Equipment (new) 50,000
Dr: Accum. depr. 40,000
Dr: Loss 10,000?
Cr: Equipment (old) 100,000

Is that correct?

[Mike J]

If there is no commercial substance, you cannot treat it like a sale. You cannot use the new asset fair value, in essence it is as though nothing happened.

As far as the journal entry, I believe it is a debit to a “new” asset of 70 and a credit to the “old” asset of 100. Debit a loss account as a plug.

Someone correct me if I'm wrong.

[AndreA]

Thank you for your respond!
If I understand correctly, CV of an asset given up is greater than
the FMV and CV of an asset received. Since the
question does not mention anything about the FMV of the
asset given up, we will assume it is equal to FMV of
asset received (as per ASC Topic 845) and my entries should be correct.

[say]

Your entry is correct. When there is no commercial substance and you don't know what the FV of the asset given up is, you record it at the FV of the asset received.

[Mike J]

Point of clarification. I thought that you don't use FV–question does give FV for both at 100 and 50, resp.–because the transaction lacks commercial substance.

[AndreA]

Thank you everyone for help! I really appreciate that!

[Author]

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