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Section 3230: Nonmonetary Asset Exchanges
[U.S. GAAP Codification Topic]
845 Nonmonetary transactions
845-10 Overall
[U.S. GAAP before the Codification]
ARB 43, June 1953, Chapter 9, Depreciation
APB 29, May 1973 Accounting for Nonmonetary Transactions
SFAS 153, December 2004, Exchange of Nonmonetary Assets, an amendment of APB Opinion No. 29
SFAS 143, June 2001, Accounting for Asset Retirement Obligations
1. Basic Principle
(A) Fair value of nonmonetary asset "received"
(B) Fair value of nonmonetary asset "surrendered"
(C) Book value of nonmonetary asset "surrendered"
(1) Exchange of Nonmonetary Assets
--> Cost of nonmonetary asset received is (B)
--> Recognize gain or loss on the exchange
(2) If (A) is more evident than (B)
--> use (A) as the cost of the asset acquired
2. Cases of Nonreciprocal Transfers
(1) When an asset is transferred, in a nonreciprocal transfer
--> Transfer is recorded at (B)
--> Recognize gain or loss on the exchange
(2) When an asset is received, in a nonreciprocal transfer
--> There is no asset surrendered
--> Cost of nonmonetary asset received is (A)
3. Basic Principles Modified
If the transaction lacks "commercial substance"
--> Cost of nonmonetary asset received is (C)
--> Gain or loss on the exchange is not recognized
4. Commercial Substance
(1) The exchange has "commercial substance"
--> if there is a significant change in future cash flows
--> after the exchange
(2) Significant change in future cash flows
(2a) Significant change in the "configuration" of cash flows
--> configuration: amount, timing, risk
(2b) Entity-specific values of assets received and surrendered
--> are significantly different
5. Boot: Monetary Consideration
If the amount of "monetary consideration" included is
--> 25% or more of the fair value of exchange
--> then, the exchange is considered as a "monetary exchange"
6. If the amount of "monetary consideration" < 25% of fair value of exchange
(1) The party that pays "monetary consideration"
--> No gain is recognized
(2) The party that receives "monetary consideration"
--> Recognized gain = total gain x ratio
--> ratio = (a) / (b)
(a) = amount of monetary consideration
(b) = value of total consideration received
7. Recognition of Loss
"Loss on the exchange"
--> is recognized in full amount
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