Question

Sutherland Limited exchanged equipment that it uses in its operations for similar equipment that is used in the operations of Richardson Limited. Sutherland also paid Richardson $1,500 in cash. The following information pertains to the exchange:

Sutherland Richardson
Equipment (cost) $40,000 $45,000
Accumulated depreciation 21,250 12,000
Fair value of equipment 20,000 23,000

a. Prepare the journal entry to record the exchange on the books of Sutherland, assuming the exchange is determined to have commercial substance.

b. Is the transaction considered monetary or nonmonetary?

Answer 1

a)

Sutherland limited
Eqiupment cost	40000
less: Accumulated depreciation	21250
Carrying Value	18750
fair value	20000

Journal Entry		Amount in $
Date	Particulars	Debit	Credit
	PPE New	21500		20000+1500	Fair value of Asset given up + Cash paid
	To PPE Old		18750		Carrying Value of asset disposed
	To Cash		1500		Given
	To Profit on Exchange		1250		Balancing figure
	(Being Profit on exchange of Assets recorded)

b)

Transaction above is considered Monetary to the extent of $1500 and balance amount of $20000 as Non Monetray.