In short
A nonmonetary exchange is an exchange of assets, such as equipment for equipment, with little or no cash. It is generally measured at fair value, with a gain or loss recognized, unless the exchange lacks commercial substance.
Key takeaways
- An exchange has commercial substance if the company's future cash flows are expected to change significantly as a result.
- Without commercial substance, the new asset generally takes the old asset's carrying amount, though a gain is recognized in proportion to any cash (boot) received.
- Losses are recognized in full either way.
Where it's tested
FAR: Property, Plant & Equipment — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A company exchanges equipment (cost $50,000, accumulated depreciation $30,000, fair value $25,000) plus $5,000 cash for new equipment. The exchange has commercial substance. At what amount is the new equipment recorded, and what gain is recognized?