USA How to record new vehicle with trade-in - GAAP

[Accountant ?]

just want to ensure this is correct

traded in new vehicle that was fully depreciated on our books - car was about 9 years old, so asset bal = accum deprec

even though car was fully depreciated, dealer gave us $ as a down payment on paper (no cash exchanged hands, but it was a reduction in the debt). 100% of the balance after the trade in was financed.

JV:

cr - fixed assets - old car
db - accum deprec old car
*Db = Cr here
db - fixed assets - new car - fmv (cost before trade-in)
cr - note payable - amount of new loan
cr - gain on "sale" of asset

Alternatively, record the disposal of the old cars - same as above and record a db and cr for the net cost of the new car.

thank you

 

[kirby]

You can't have a gain on the purchase. The value given to you by the dealer just reduces the cost basis of the car. So your second method is correct.

 

[ttreacy]

I agree with Kirby - You cannot have a gain/loss on a purchased asset, only a sold asset. Therefore - you'd Debit Fixed Assets for the new car cost (loan amount) and Credit Note Payable for the loan amount for the new car.