Disposal of Depreciable Assets Involving Exchanges

In recording exchanges of similar plant assets, a gain or loss may arise. According to the Accounting Principles Board, losses, but not gains, should be recognized at the time of exchange. When a gain is not recognized, the new asset is recorded at the carrying value of the old asset plus any cash paid. For income tax purposes, neither gains nor losses are recognized in the exchange of similar assets. When dissimilar assets are exchanged, gains and losses are recognized under both accounting and income tax rules.