Accounting Online Program Certification Practice Test

What was the cash price for the new vehicle after the part exchange for Bailey Ltd?

1. £12,000

2. £21,550

3. £18,750

4. £19,550

The correct answer is: £21,550

To determine the cash price for the new vehicle after the part exchange for Bailey Ltd, you need to consider the original price of the new vehicle and the value of the part exchange. The cash price reflects the amount that will actually be needed to pay out-of-pocket after accounting for the trade-in value of the old vehicle. In this case, if the new vehicle's list price is £21,550 and the value of the part exchange (the old vehicle) is taken into account, the cash price would represent the remaining balance after subtracting the part exchange value. It's essential to focus on the transaction structure: the original price indicates how much the new vehicle is worth, while the part exchange helps reduce the overall cost. Given that the cash price reflects this net amount after the part exchange, arriving at £21,550 confirms that the old vehicle's value has not yet been deducted from the cost of the new one. In summary, the cash price of £21,550 indicates the full price of the new vehicle before any trade-in adjustment, serving as a base price reflecting the transaction before applying any part exchange discount.