Accounting for Nonmonetary Exchanges

Question 1

When does an exchange have commercial substance?

Answer 1

When the future cash flows change as a result of the transaction

Question 2

Are Gains/ Losses Recognized for exchanges having commercial substance?

Answer 2

Yes, always.

Gain/Loss=Difference between FV and BV of asset given up

Question 3

How are nonmonetary transactions characterized under IFRS?

Answer 3

As exchanges of dissimilar assets (treat the same way as exchanges having commercial substance under GAAP) and as exchanges of similar assets (no gains are recognized)

Question 4

What are the rules for gain recognition for exchanges lacking commercial substance?

Answer 4

1. No boot received = No Gain
2. Boot Paid= Gain
3. Boot Is received= If gain recognize gain proportionally
4. Boot Is received= If gain > 25% -> Gains and losses are fully recognized

Question 5

What is involuntary conversion?

Answer 5

Whenever a nonmonetary asset is involuntary converted to cash, the entire gain/loss is recognized