PRC-1 · Chapter 6 · Question 35 of 100
A business trades in its old delivery van for a new one. The new van's fair value is Rs. 800,000. The dealer gives a trade-in allowance of Rs. 300,000 for the old van, and the business pays the remaining Rs. 500,000 in cash. What is the capitalized cost of the NEW van?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Rs. 800,000
Explanation
The cost of the new asset is its full fair value (Rs. 800,000). The trade-in allowance represents the disposal proceeds received for the old asset, not a reduction in the capital cost of the new asset.
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