10-1

Valuation of PP&E
Exchanges of Nonmonetary Assets
Ordinarily accounted for on the basis of:

the fair value of the asset given up or

the fair value of the asset received,

whichever is clearly more evident.

Companies should recognize immediately any gains or losses
on the exchange when the transaction has commercial
substance.

10-2

LO 5 Understand accounting issues related to acquiring and valuing plant assets.

Valuation of PP&E
Meaning of Commercial Substance
Exchange has commercial substance if the future cash flows
change as a result of the transaction.
That is, if the two parties economic positions change, the
transaction has commercial substance.
Illustration 10-10

10-3

LO 5 Understand accounting issues related to acquiring and valuing plant assets.

Valuation of PP&E
Exchanges - Loss Situation
Companies recognize a loss immediately whether the
exchange has commercial substance or not.
Rationale: Companies should not value assets at more than
their cash equivalent price; if the loss were deferred, assets

would be overstated.

10-4

LO 5 Understand accounting issues related to acquiring and valuing plant assets.

Valuation of PP&E
Cara Mudah
1. Hitung Nilai Buku Aset Lama

= Harga perolehan aset lama Akumulasi penyusutan

2. Bandingkan Nilai Buku Aset Lama dengan Nilai Wajarnya

NB > NW = Rugi
NB < NW = Laba
3. Hitung Harga Perolehan Aset Baru
= Nilai Wajar Aset Lama + Kas yang dibayarkan

10-5

LO 5 Understand accounting issues related to acquiring and valuing plant assets.

Valuation of PP&E
Illustration: Information Processing, Inc. trades its used machine for a
new model at Jerrod Business Solutions Inc. The exchange has
commercial substance. The used machine has a book value of $8,000
(original cost $12,000 less $4,000 accumulated depreciation) and a fair
value of $6,000. The new model lists for $16,000. Jerrod gives
Information Processing a trade-in allowance of $9,000 for the used
machine. Information Processing computes the cost of the new asset
as follows.

Illustration 10-11
10-6

LO 5 Understand accounting issues related to acquiring and valuing plant assets.

Valuation of PP&E
Illustration: Information Processing records this transaction as
follows:
Equipment

13,000

Accumulated DepreciationEquipment

4,000

Loss on Disposal of Equipment

2,000

Equipment
Cash

12,000
7,000
Illustration 10-12

Loss on
Disposal

10-7

LO 5 Understand accounting issues related to acquiring and valuing plant assets.

Valuation of PP&E
Exchanges - Gain Situation
Has Commercial Substance. Company usually records the
cost of a nonmonetary asset acquired in exchange for

another nonmonetary asset at the fair value of the asset

given up, and immediately recognizes a gain.

10-8

LO 5 Understand accounting issues related to acquiring and valuing plant assets.

Valuation of PP&E
Illustration: Interstate Transportation Company exchanged a number
of used trucks plus cash for a semi-truck. The used trucks have a
combined book value of $42,000 (cost $64,000 less $22,000
accumulated depreciation). Interstates purchasing agent,
experienced in the second-hand market, indicates that the used trucks
have a fair market value of $49,000. In addition to the trucks,
Interstate must pay $11,000 cash for the semi-truck. Interstate
computes the cost of the semi-truck as follows.
Illustration 10-13

10-9

LO 5 Understand accounting issues related to acquiring and valuing plant assets.

Valuation of PP&E
Illustration: Interstate records the exchange transaction as follows:
Semi-truck

60,000

Accumulated DepreciationTrucks

22,000

Trucks
Gain on disposal of Used Trucks

Cash

64,000
7,000

11,000
Illustration 10-14

Gain on
Disposal

10-10

LO 5 Understand accounting issues related to acquiring and valuing plant assets.

Valuation of PP&E
Exchanges - Gain Situation
Lacks Commercial Substance.

Now assume that Interstate Transportation Company

exchange lacks commercial substance. That is, the
economic position of Interstate did not change significantly

as a result of this exchange. In this case, Interstate defers

the gain of $7,000 and reduces the basis of the semi-truck.

10-11

LO 5 Understand accounting issues related to acquiring and valuing plant assets.

Valuation of PP&E
Illustration: Interstate records the exchange transaction as
follows:

Semi-truck

53,000

Accumulated DepreciationTrucks

22,000

Trucks

64,000

Cash

11,000
Illustration 10-15

10-12

LO 5 Understand accounting issues related to acquiring and valuing plant assets.

Valuation of PP&E
Summary of Gain and Loss Recognition
on Exchanges of Non-Monetary Assets
Illustration 10-16

Disclosure include:

10-13

nature of the transaction(s),

method of accounting for the assets exchanged, and

gains or losses recognized on the exchanges.

LO 5 Understand accounting issues related to acquiring and valuing plant assets.

Valuation of PP&E
E10-17: PT. Alatorre menukarkan mesin yang dimilikinya dengan
mesin baru dari PT. Mills, plus membayar uang tunai $320
kepada PT Mills.
PT. Alatorre

PT. Mills

Harga perolehan mesin

$290

$270

Akumulasi penyusutan

$140

-0-

Nilai wajar mesin

$85

$405

Instruksi:
a. Buatlah jurnal yang harus dicatat oleh masing-masing
perusahaan (transaksi memiliki substansi komersil).
b. Buatlah jurnal yang harus dicatat oleh masing-masing
perusahaan (transaksi tidak memiliki substansi komersil)
10-14

Valuation of PP&E
E10-18: PT. Montgomery membeli mesin pada tanggal 30 April
2016, dengan cara menukarkan mesin lamanya dan membayar
uang tunai $10.000. Informasi lain adalah sbb:
Harga mesin baru

$15.800

Harga perolehan mesin lama (umur ekonomis 5 tahun,

nilai sisa $700)

$12.700

Akumulasi depresiasi mesin lama (hingga 31 Des 2015,

metode garis lurus)

$7.200

Nilai wajar mesin lama

$5.200

Instruksi:
a. Buatlah jurnal yang harus dicatat jika transaksi memiliki
substansi komersil.

b. Buatlah jurnal yang harus dicatat jika transaksi tidak memiliki

10-15
substansi komersil)

Valuation of PP&E
E10-19: Santana Company exchanged equipment used in its
manufacturing operations plus $2,000 in cash for similar equipment
used in the operations of Delaware Company. The following
information pertains to the exchange.

Equipment (cost)
Accumulated Depreciation
Fair value of equipment
Cash given up

Santana
$28,000
19,000
13,500
2,000

Delaware
$28,000
10,000
15,500

Instructions: Prepare the journal entries to record the exchange on

the books of both companies.

10-16

LO 5 Understand accounting issues related to acquiring and valuing plant assets.

Costs Subsequent to Acquisition

Illustration 10-21

10-17

LO 6

Disposition of PP&E
A company may retire plant assets voluntarily or dispose of
them by

sale,

exchange,

involuntary conversion, or

abandonment.

Depreciation must be taken up to the date of disposition.

10-18

LO 7 Describe the accounting treatment for the

disposal of property, plant, and equipment.

Disposition of PP&E
Sale of Plant Assets
BE10-15: Ottawa Corporation owns machinery that cost
$20,000 when purchased on July 1, 2007. Depreciation has
been recorded at a rate of $2,400 per year, resulting in a
balance in accumulated depreciation of $8,400 at December 31,
2010. The machinery is sold on September 1, 2011, for
$10,500.
Prepare journal entries to
a) update depreciation for 2011 and
b) record the sale.
10-19

LO 7 Describe the accounting treatment for the

disposal of property, plant, and equipment.

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10-20