On July 1, 2021, PAOLO exchanged its non-monetary asset (equipment) with YEN’s non-monetary asset (machinery). The following data were made available: PAOLO: Equipment P4,400,000 Accumulated depreciation 2,000,000 Fair value of the Equipment 3,000,000 YEN: Machinery P3,700,000 Accumulated depreciation 1,800,000 Fair value of the machinery 2,100,000 The exchange has significantly changed the cash flows of each entity. How much is the gain or loss on exchange for YEN?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
On July 1, 2021, PAOLO exchanged its non-monetary asset (equipment) with YEN’s non-monetary asset (machinery). The following data were made available:
PAOLO:
Equipment P4,400,000
Fair value of the Equipment 3,000,000
YEN:
Machinery P3,700,000
Accumulated depreciation 1,800,000
Fair value of the machinery 2,100,000
The exchange has significantly changed the cash flows of each entity.
How much is the gain or loss on exchange for YEN?
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