Asked by ronak hindocha on Apr 27, 2024
Verified
When an asset is exchanged for a similar asset and a gain results, under accounting rules the gain is:
A) credited to Gain on Exchange of an Asset.
B) recorded in the other income section of the income statement.
C) absorbed into the cost of the new asset.
D) subtracted from the cost of the new asset.
Gain
A gain refers to an increase in wealth or resources, typically measured in financial terms and often realized from the sale of an asset for more than its cost.
Accounting Rules
The formal guidelines and principles that govern financial accounting practices, ensuring accuracy and consistency in financial reporting.
- Acquire knowledge on the treatment of asset exchanges in accounting and how to calculate gains or losses.
Verified Answer
GC
Gabriel CorzineApr 28, 2024
Final Answer :
C
Explanation :
When an asset is exchanged for a similar asset and a gain results, the gain is absorbed into the cost of the new asset. This treatment prevents the recognition of the gain in the income statement, reflecting the continuation of the investment in a similar asset rather than a realization of gain.
Learning Objectives
- Acquire knowledge on the treatment of asset exchanges in accounting and how to calculate gains or losses.