Topic: PPE- Acquisition of Property: EXCHANGE

Ocean Company plans to dispose of an equipment in one of several ways:

Equipment old 2,000,000

Accumulated depreciation 700,000

Fair value 1,500,000

1. The equipment is exchanged for a vacant lot whose fair value is P1,700,000.

2. The equipment is exchanged for a used equipment also valued at P1,500,000. The cash flows of the asset given and the cash flows of the asset received do not differ. (No commercial substance)

3. The equipment is exchanged for a used equipment valued at P2,000,000. River Company pays P500,000 in the exchange.

Required :

1. . Prepare the journal entry for each of the above exchange transactions (3 journal entries)

2. Compute the amount that will be capitalized as the cost of the new asset in each of the above independent exchange assumptions. (3 answers, 1 each assumption)