Example of Acct Problem

Our bakery has recently traded our old four-door company car that we bought three years ago for a van that enables us to transport wedding cakes and other items with much more ease. Our old company car had a current book value of $20,000, but was appraised at $35,000. The van we got in return is valued at $35,000 as well. We cannot tell if the exchange will dramatically change profits or cash flows at this time because we have just received the van; however, we do not foresee it changing the risk involved with our cash flows. In addition, the van will be serving the same purpose that the car served and will deliver approximately the same amount of goods. We estimate that both vehicles have a useful life of ten years.

We have accounted for the exchange of the car for the van by debiting the value of the van, crediting the book value of the old car and recognizing a gain of $15,000. This gain is a result of the difference between the old book value of the company car and the new value of the van. However, my friend who I traded the car for the van with did not recognize any loss on the trade. Everyone at the bakery is confused about this difference. It is our belief that we get an extra $15,000 by trading a car that was worth $20,000 for a van valued at $35,000? I was hoping you could help us straighten out this little mix up. Thanks for your time and I look forward to hearing back from you soon.