Nonmonetary Transactions (F3:M6)

Question 1

when does an exchange have “commercial substance”?

Answer 1

if the economic position of the two parties changes because of the exchange

Question 2

what can be assumed about fair value?

Answer 2

FV of assets given up is equal to FV of assets received, including any cash given or received in the transaction

Question 3

in exchanges having commercial substance, when are g/l recognized and how are they calculated?

Answer 3

they’re always recognized

FV of asset given up - BV of asset given up

Question 4

in exchanges having commercial substance, how is the basis of the acquired asset calculated?

Answer 4

FV of the asset given up + cash received

Question 5

when an exchange lacks commercial substance and no boot (cash) is received, how much of a gain is recognized?

Answer 5

No gain is recognized

Question 6

in an exchange that lacks commercial substance when is a gain recognized and how much of it in the following situations:

1. boot is paid
2. boot is received
3. boot is 25% or more of total consideration

Answer 6

1. boot paid is less than 25% of the total consideration, no gain recognized
2. boot received is less than 25% of total consideration received, some of gain is recognized

(total boot received/total consideration received)
x
total gain (FV of asset given up - BV of asset given up)

3. both parties account for transaction as monetary exchange (all g/l are recognized by both parties)

Question 7

if an exchange lacks commercial substance, what is the rule for losses

Answer 7

losses are recognized