Why are trade-ins of similar fixed assets handled differently than just selling old fixed assets and buying new ones?
If a fixed asset is sold outright, a gain or loss is recognized in a separate gain or loss account. In the case of a trade-in of a fixed asset when acquiring a new similar fixed asset, the accounting treatment will depend on whether there is a gain or loss in the transaction. If an old fixed asset is involved in the purchase of a new similar one, gains are not recognized but losses are recognized. In the case of a gain, the new asset is considered a continuation of the old asset, and therefore no gain is recognized. Instead, the cost basis of the new one is adjusted accordingly. If the trade-in results in a loss, then the loss is taken (recognized in a loss account) since the loss is now. The conservative concept prevails here, since the transaction resulted in a loss.
