Question

Nirvana Company traded in a automatic pressing machine for a manual pressing machine owned by Dodson...

Nirvana Company traded in a automatic pressing machine for a manual pressing machine owned by Dodson Company. These machines have similar future cash flows. Nirvana's old machine cost $244,547 and had a net book value of $180,714. The old machine had a fair value of $191,143. They received $30000 boot in the deal.

What is the amount of gain or loss from this transaction?

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Answer #1
Answer:
Amount of gain or loss from this transaction
    = (Fair Value (-) Book Value) x Boot deal / Fair Value
    =   ($191,143 (-) $180,714) x $30,000 / $191,143
    =   $10,429 x $30,000 / $191,143
    =      $312,870,000 / $191,143
    =      $1,636.84
Amount of gain or loss from this transaction = $1,636.84
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