An automobile costs $60,000 when new and has accumulated depreciation of $35,000. Suppose the automobile is exchanged for a new automobile. The new automobile has a market value of $70,000 and we pay $45,000 in cash. Assume the exchange has commercial substance. What is the result of this exchange?

no gain or loss

Explanation:

Cost of the old car: $ 60,000.00

Depreciation to date: $ 35,000.00

Current book value : = $ 60,000.00 - $ 35,000.00

= $ 25,000.00

New car value: $ 70,000.00

Paid amount in cash : $ 45,000.00

difference : = $ 70,000.00.-45,000.00

= $ 25,000

Commercial gain or loss equal: book value of the old car - the difference in the value of new car and amount paid in cash

= $25,000-$25,000=0 (no gain or loss)