Sand Corp exchanged equip used in its operations and pay $2,000 cash to Dake Corp for similiar equip used and its operations. The following is true: FMV of equip given up by Sand Corp is $13,500 (for Dake its $15,500) Cost of equip given up for Sand corp and Dake is $28,000; Accumulated Depr for Sand Corp is $19,000 (for Dake is $10,000) What is the basis for the new asset received by Dake in dollars if there is commercial substance in the exchange?
13. Sand Corp exchanged equip used in its operations and pay $2,000 cash to Dake Corp for similiar equip used and its operations. The following is true: FMV of equip given up by Sand Corp is $13,500 (for Dake its $15,500) Cost of equip given up for Sand corp and Dake is $28,000; Accumulated Depr for Sand Corp is $19,000 (for Dake is $10,000)
What is the basis for the new asset received by Dake in dollars if there is commercial substance in the exchange?
Thank you
Brenda
Commercial Substance:
An exchange of assets has commercial substance when there is a change in the future cash flow due to this exchange. In case of commercial substance, the assets are recognized at fair value and the gain or loss on the sale of asset is recognized.
But when there is no commercial substance, the asset acquired is reported in the books of account at the asset forgone book-value.
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