The general entry for the exchange of fixed assets will be as follows.
Debit -Accumulated depreciation 3.5
Debit -New machine 7
Debit- Loss on exchange of machine 0.5
credit- Machine old machine 10
Credit- Cash paid 1
This requires derecognizing of old machine form the books of accounts along with its accumulated depreciation. And new machine will be recognized in the books of transaction. A loss on exchange of machines has been incurred due to excess *** outflow of funds.
Working for the gain or loss on exchange will be as follows.
Cost of old machine 10
Less: Accumulated depreciation (3.5)
Book value of old machine 6.5
Addition of new machine (7)
Cash consideration paid 1
Loss on machine 0.5
