Charles Ltd (C Ltd) owns equipment with market value of $2,000,000 and cost of $2,200,000. Success Ltd (S Ltd) owns a building with market value of $2,400,000 and cost of $2,100,000. C Ltd and S Ltd exchange their assets. The accumulated depreciation is $20,000 for both the equipment and building. S Ltd gives C Ltd a cash amount of $70,000 in the exchange. Prepare journal entries to record the exchange of asset in the books of C Ltd and S Ltd. if the exchange is considered to be having commercial substance. Suppose that S Ltd. does not pay C Ltd $70,000. Now record the transaction in the books of C Ltd and S Ltd. assuming the exchange is considered to lack commercial substance. The accountant of Charles Ltd states that ‘any expenditure subsequently spent after the purchase of plant assets should be recorded as an expense item rather than added to the cost of plant assets’. Do you agree with the statement above? Explain and support your answer with examples.
Charles Ltd (C Ltd) owns equipment with market value of $2,000,000 and cost of $2,200,000. Success Ltd (S Ltd) owns a building with market value of $2,400,000 and cost of $2,100,000. C Ltd and S Ltd exchange their assets. The
Prepare
Suppose that S Ltd. does not pay C Ltd $70,000. Now record the transaction in the books of C Ltd and S Ltd. assuming the exchange is considered to lack commercial substance.
The accountant of Charles Ltd states that ‘any expenditure subsequently spent after the purchase of plant assets should be recorded as an expense item rather than added to the cost of plant assets’. Do you agree with the statement above? Explain and support your answer with examples.
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