Chapter 2 Section 4: Accounting for Nonmonetary Exchanges

Question 1

What categories does GAAP classify nonmonetary exchanges in?

What does each mean?

Answer 1

Commercial substance - future cash flows change as a result

Lacking commercial substance - no change in economic position

Question 2

In an exchange that has commercial substance, are gains and losses recognized?

Answer 2

Yes - always. Treat it like a normal sale.

Question 3

How is fair value applied?

Answer 3

The FV of the assets received equals the FV of the assets given up.
If you give up a car and get a building, use the car’s FV to determine the building’s.

Question 4

What categories does IFRS classify nonmonetary exchanges in?

Answer 4

Similar assets - like lacking commercial substance

Dissimilar assets - like having commercial substance

Question 5

List the ways gains are handled in nonmonetary exchanges lacking commercial substance

Answer 5

1. no boot received = no gain
   use the book value of the given up one for the JE
2. boot is paid = no gain
3. boot received is 25% of consideration received = consider it a monetary exchange and recognize the entire gain

Question 6

How are losses handled in nonmonetary exchanges lacking commercial substance?

Answer 6

Always recognize them

Question 7

What is an example of an involuntary conversion?

How are gains and losses handled?

Answer 7

Fire, theft, etc

Recognize the entire gain or loss, factoring in insurance proceeds received.