Hilger Flick & Co.

Rules for Determining Gain or Loss on a Trade-in

                             Loss:  << Recognize Immediately in Full

Trade-in                                             Dissimilar Assets:  << Recognize Immediately in Full

                             Gain                                                              No Cash Involved: No Gain Recognized                                                                                                                                                                                                                                                                                                                    Similar Assets                 Cash Given: No Gain Recognized

                                                                                                   Cash Received: Recognize Partial Gain*                                                                                                                                                                                                                                                                     

*Gain =                     Cash Received                            

                Cash Received + FMV of Asset Received          

       Thus if Similar: **                                                  If Dissimilar:

 New Asset                 38,000                                      New Asset                  40,000

 A/D                           15,000                                      A/D                             15,000

 Gain                                  0                                      Gain                             2,000

 Cash                         28,000                                      Cash                           28,000

 Old Asset                  25,000                                      Old Asset                    25,000

 Recognize gain over life of asset by                              Recognize gain immediately

 lower depreciation charges

** Similar productive assets. Productive assets that are of the same general type, that perform the same function or that are employed in the same line of business. (e.g. golf carts)

 Statement of Changes

Two methods of reporting sale of non-current Assets:

1.     All proceeds of disposition are shown as an “other source” of cash; a subtraction from net income is required for the amount of the gain. Reported cash from operations excludes the amount of the gain.

2.     No adjustment to net income is made in showing cash from operations. The “other source” of funds from disposition of a non-current asset must; therefore, show an amount equal to the book value of the asset retired. An appropriate title is proceeds from the sale of non-current assets.

Send questions or comments to mail@hilgerflick.com 
Copyright © Hilger Flick & Co.