Non-monetary exchanges Flashcards
Non-monetary exchange
asset exchanged for asset
two types: with commercial substance, without commercial substance
Monetary assets & liabilities
assets & liabilities where the amounts are fixed by contract or in terms of currency (e.g. cash account, note receivable/payable)
Non-monetary assets & liabilities
assets & liabilities other than monetary assets/liabilities. e.g. inventory
value is not fixed
What is an asset?
Anything that will result in a future economic benefit
Exchange w/ commercial substance
Exchange of assets where the risk, timing, and amount of future cash flows from the assets exchanged vary significantly.
Exchange w/o commercial substance
Exchange of assets where the risk, timing, and amount of furture cash flows from the assets exchanged do NOT vary significantly.
Boot
a small monetary consideration included in part of a non-monetary exchange. emphasis on small.
Commercial substance - FV determinable
If FV of the assets are determinable, use the fair value method to recognize gain/loss.
Acquired asset is recorded at FV.
Commercial substance - FV not determinable / exchange of inventory
If FV is NOT determinable, use the carrying value method. No gain/loss is recognized.
Acquired asset is recorded at BV.
Exchange step 1: calculate realized gain (loss)
Commercial substance
FV determinable:
FV asset given up*
- CV asset given up
= realized gain/loss
*if FV of asset given up is not known, can estimate using FV of asset received +/- cash rec’d/paid (duh)
FV not determinable:
nope - nothing to recognize. can’t be calc’d
e.g. exchange of two patents. neither one has a FV.
Exchange step 2: book entries
FV determinable
Commercial substance
DR asset received
Exchange step 2: book entries
FV NOT determinable
Commercial substance
DR asset received
Exchange without commercial substance
Three cases:
no boot paid or received
boot paid
boot received
No boot
No commercial substance
recognize only loss; no gain
record asset acquired at BV
Boot paid
No commercial substance
recognize only loss; no gain
record asset acquired at BV + boot paid
Boot received
No commercial substance
recognize full loss; only a portion of gain
record asset at…
Asset = BV - boot rec’d + gain recog’d
Exchange step 1: calculate gain/loss
No commercial substance
FV asset given up
- CV asset given up
= realized gain or loss
gain:
no boot = ignore
boot paid = ignore
boot rec’d =
if % of boot is <25%, partial recognition
if % of boot is > 25%, full recognition
boot rec’d: treat as if asset partially sold; calculate cash rec’d percentage of total assets [cash rec’d + FV asset rec’d]. multiply by gain amount to arrive at recog’d amount of gain
e.g. FV asset 20
- CV asset given up -15
= gain 5
cash rec’d 2 / (2 + 20) = 9.09% * gain 5000 = 454.55
Exchange step 2: book entries
no boot / boot paid:
DR asset rec’d
