[Cheryl Mckenzie]

my company has purchased a new asset and has traded in an old asset to reduce its cost. How do I account for this trade in value

[ArcSine]

The net book value of the traded asset becomes a part of the book cost of the new asset.

Example: I have an old asset that I originally bought for $100. Up through today I've taken $75 of depreciation on it. Today I acquire a replacement asset which has a price of $135, and the dealer gives me a $45 trade-in allowance for my old one.

So with a trade-in allowance of 45, I still need to come up with 90 for the purchase. Suppose I do this with 20 down and I give a note for 70.

My debits and (credits) will play out like so:

(100) Fixed Assets (gets the old asset's cost off the books)
75 Accumulated Depreciation (removes the old asset's AD)
( 20) Cash (down payment)
( 70) Note Payable
115 Fixed Assets (records the new asset)

Note that the $135 "sticker price" of the new asset never appears directly on my books. The cost of the new asset to me (115) is the sum of (a) the cash I gave; (b) the promissory note I gave; and (3) the remaining book value of the traded asset ($25).

Good to go?