Nonmonetary Exchanges with No Commercial Substance

Question 1

What is no commercial substance?

Answer 1

The entity is not significantly affected by the exchange and assets in use are not significantly different.

Question 2

How do you account for exchange with no commercial substance?

Answer 2

If a loss is evident, record is loss and the asset at FV (same as with commercial substance)

If a gain is evident and cash is paid: No gain is recognized and the new asset is the sum of the BV of the asset exchanged + Cash Paid

If a gain is evident and cash is received <25% of the total: Recognize a gain in proportion to the cash received and the new asset is at FV less the unrecognized portion of the gain

If a gain is evidend and cash received is >25%, recognize the full gain and record the new asset at FV

Question 3

If cash is paid and the FV>CV is there a gain?

Answer 3

NO!

Question 4

If you cash is <25% of the total consideration or FV of the asset received, do you get to recongize the full gain?

Answer 4

No! you only get to recognize the cash portion divided by the consideration multiplied by the gain.

YOU HAVE TO REMEMBER THIS!!!

Question 5

If fair value cannot be determined, how do you record the asset?

Answer 5

Record asset acquired at:
Book value of the old asset + Cash Paid or - Cash received
No gain or loss is recognized