Non-monetary exchanges

Question 1

Non-monetary exchange

Answer 1

asset exchanged for asset

two types: with commercial substance, without commercial substance

Question 2

Monetary assets & liabilities

Answer 2

assets & liabilities where the amounts are fixed by contract or in terms of currency (e.g. cash account, note receivable/payable)

Question 3

Non-monetary assets & liabilities

Answer 3

assets & liabilities other than monetary assets/liabilities. e.g. inventory

value is not fixed

Question 4

What is an asset?

Answer 4

Anything that will result in a future economic benefit

Question 5

Exchange w/ commercial substance

Answer 5

Exchange of assets where the risk, timing, and amount of future cash flows from the assets exchanged vary significantly.

Question 6

Exchange w/o commercial substance

Answer 6

Exchange of assets where the risk, timing, and amount of furture cash flows from the assets exchanged do NOT vary significantly.

Question 7

Boot

Answer 7

a small monetary consideration included in part of a non-monetary exchange. emphasis on small.

Question 8

Commercial substance - FV determinable

Answer 8

If FV of the assets are determinable, use the fair value method to recognize gain/loss.
Acquired asset is recorded at FV.

Question 9

Commercial substance - FV not determinable / exchange of inventory

Answer 9

If FV is NOT determinable, use the carrying value method. No gain/loss is recognized.
Acquired asset is recorded at BV.

Question 10

Exchange step 1: calculate realized gain (loss)

Commercial substance

Answer 10

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.

Question 11

Exchange step 2: book entries
FV determinable

Commercial substance

Answer 11

DR asset received

Question 12

Exchange step 2: book entries
FV NOT determinable

Commercial substance

Answer 12

DR asset received

Question 13

Exchange without commercial substance

Answer 13

Three cases:
no boot paid or received
boot paid
boot received

Question 14

No boot

No commercial substance

Answer 14

recognize only loss; no gain

record asset acquired at BV

Question 15

Boot paid

No commercial substance

Answer 15

recognize only loss; no gain

record asset acquired at BV + boot paid

Question 16

Boot received

No commercial substance

Answer 16

recognize full loss; only a portion of gain
record asset at…
Asset = BV - boot rec’d + gain recog’d

Question 17

Exchange step 1: calculate gain/loss

No commercial substance

Answer 17

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

Question 18

Exchange step 2: book entries

Answer 18

no boot / boot paid:

DR asset rec’d