On 31st December, 2011, Audubon Inc. exchanged machines A and B for a new machine C. Audubon also received $5,000 in cash. The transaction is deemed to lack commercial substance.
- Machine A was acquired on 1st January, 2008, at a cost of $60,000. The machine has an estimated 10-year useful life and scrap value of $10,000. This machine is depreciated using straight-line depreciation.
- Machine B was acquired on 1st January, 2010, at a cost of $70,000. The machine has an evaluated five-year useful life and scrap value of $5,000. This machine is being depreciated using the double-declining technique.
- Machine C has a fair value of $63,400 at 31st December, 2011.