FAR - Specific Transactions, Events, & Disclosures - Commercial Substance Flashcards Preview

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Flashcards in FAR - Specific Transactions, Events, & Disclosures - Commercial Substance Deck (13)
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1
Q

commercial substance exchange

A

1) new asset will generate CFs significantly different than old asset in terms of amount, timing/risk
2) use value of new asset is different

2
Q

Nonmonetary asset

A

don’t have stated value, as do cash, plant asset, & A/R

*must value incoming asset @ FV and record gain/loss based on old asset’s FV and BV

EX: firm exchanges 1 machine for another machine must figure out debt on asset and record gain/loss

3
Q

General Concepts I

A

Preferred valuation of new asset = FV of asset given in exchange

If FV of new asset more objectively determined -> use this value

If neither asset’s FV determined, no gain/loss recognized, new asset recorded @ BV of old asset + cash paid or - cash received

4
Q

Common-sense relationships

cash paid

cash received

A

Cash frequently paid/received in exchange, use these common-sense relationships:

1) If cash paid: FV of new asset = old asset FV + cash paid
2) If cash received: new asset FV = old asset FV - cash rec’d

5
Q

In a nonmonetary exchange, under what circumstances is fair value not used to value an asset.

A

1) FV of either asset is not determinable;
2) Exchange is made to facilitate a sale;
3) Exchange lacks commercial substance

6
Q

When do you use list price?

A

List price should not be used for fair value-list prices because they are notoriously inflated.

7
Q

FV isn’t determinable

A

Record asset acquired :

old asset BV + cash paid - cash received

No gain/loss recorded

8
Q

Exchange lacks Commercial substance - same economic position (recognize NO gain)

“major exception - firm not affected by exchange/assets in use are not different*

A
  • record loss in full and record net asset @ FV
  • gain exists, but cash is NOT received, recognize no gain and record new asset old asset BV + cash paid
  • gain, cash received, recognize gain in proportion to cash received, new asset FV = FV - unrecognized gain
9
Q

Lacks Commercial Substance

EXCEPTION

A

if proportion of cash to total consideration = 25%/more, record full gain AND asset acquired @ FV

10
Q

When cash is received and gain is evident….

A

gain recognized in proportion to amount of cash received……cash rec’d / total consideration

11
Q

when to recognize losses?

A

ALWAYS

12
Q

true/false

commercial substance is lacking, gains are recognized in proportion to the amount of cash received. If cash is paid, then recognize no gain/loss.

A

true

13
Q

GAAP vs IFRS

A

GAAP

  • barter transactions based on FV
  • no acct guidance
  • donates assets @ FV & gain/loss

IFRS

  • barter referenced to non-barter –> fair value of the advertising services provided can be reliably measured by reference to a nonbarter transaction for similar advertising with a different counterparty
  • assets rec’d by gov’t = gov’t grant
  • no acct guidance

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