Exchassets

Exchange of Nonmonetary Assets Major exchange categories: Dissimilar assets
Similar assets - In a loss trade - In a gain trade without cash receipt - In a gain trade with cash receipt
Exchange of Nonmonetary Assets Major exchange categories: Dissimilar assets
Similar assets - In a loss trade - In a gain trade without cash receipt - In a gain trade with cash receipt
Similarity refers to use or function within the line of business activity
Exchange of Nonmonetary Assets
Case 1: Dissimilar Assets
Case 1: Dissimilar Assets Asset acquired recorded at FMV of asset given up

Gain or loss recorded at difference between FMV of asset given up and BV of asset given up
Exchange of Nonmonetary Assets Case 1: Dissimilar Assets Example

Crane given up: Original cost Accum. Depr. FMV Truck received: FMV
$50,000 $40,000 $12,000

$13,200

$50,000 $40,000 $12,000

$13,200
Acquired truck valued at FMV of Crane given up: $12,000

$50,000 $40,000 $12,000

$13,200
Acquired truck valued at FMV of Crane given up: $12,000 Gain is recognized for difference between FMV of Crane and BV of Crane

$50,000 $40,000 $12,000

$13,200
BV = $10,000
Acquired truck valued at FMV of Crane given up: $12,000 Gain is recognized for difference between FMV of Crane and BV of Crane Gain = $12,000 10,000 = $2,000
Exchange of Nonmonetary Assets Case 1: Dissimilar Assets Example Journal entry: Accum. Depr., Crane Crane 40,000 50,000
First, take the Crane off the books.
Exchange of Nonmonetary Assets Case 1: Dissimilar Assets Example Journal entry: Accum. Depr., Crane 40,000 Crane Gain on Crane disposal
50,000 2,000
Then, record the gain on the transaction.
Exchange of Nonmonetary Assets Case 1: Dissimilar Assets Example Journal entry: Truck 12,000 Accum. Depr., Crane 40,000 Crane Gain on Crane disposal
50,000 2,000
Finally, record the value of the new truck. Note that this is the FMV of the Crane given up (not FMV of the truck received).
Case 2: Similar Assets in a Loss Trade
Case 2: Similar Assets in a Loss Trade This will naturally occur when the fair market value of the asset given up is below its book value
Case 2: Similar Assets in a Loss Trade Asset acquired recorded at FMV of asset(s) given up
Loss recorded at difference between FMV of asset(s) given up and BV of asset(s) given up
Exchange of Nonmonetary Assets Case 2: Similar Assets in a Loss Trade Example

Car traded-in: Original cost Accum. Depr. FMV Car received: FMV
$20,000 $10,000 $9,000

$13,000

$20,000 $10,000 $9,000

$13,000
BV = $10,000
Note that we expect a loss of $1,000

$20,000 $10,000 $9,000

$13,000
BV = $10,000
Note also that the dealer will expect us to pay $4,000 cash to make up for FMV shortfall. (He is only willing to give us FMV credit for our trade-in).
Exchange of Nonmonetary Assets Case 2: Similar Assets in a Loss Trade Example Journal entry:
Accum. Depr., Old Car Old Car 10,000 20,000
First, remove the old car from the books.
Loss on disposal, Old Car Accum. Depr., Old Car Old Car Cash 1,000 10,000 20,000 4,000
Second, record the cash disbursement and the loss on disposal.
New Car Loss on disposal, Old Car Accum. Depr., Old Car Old Car Cash 13,000 1,000 10,000
20,000 4,000
Finally, record the new car. Notice that the value ends up being the equivalent to FMV of car given up ($9,000) + FMV of cash given up ($4,000).
Exchange of Nonmonetary Assets Case 3: Similar Assets in a Gain Trade without cash receipt
Exchange of Nonmonetary Assets Case 3: Similar Assets in a Gain Trade without cash receipt The gain is deferred until the new asset is sold.
Exchange of Nonmonetary Assets Case 3: Similar Assets in a Gain Trade without cash receipt The gain is deferred until the new asset is sold. New asset recorded at BV of asset(s) given up.
Exchange of Nonmonetary Assets Case 3: Similar Assets in a Gain Trade without cash receipt example
House given up: Original cost Accum. Depr. FMV
House received: FMV $200,000 $30,000 $250,000 $265,000
BV = $170,000
Note that we expect a gain of $80,000.
BV = $170,000
Note that we expect a gain of $80,000. But this gain will be deferred since this is an exchange of similar assets without cash receipt.
BV = $170,000
Note also that we will need to pay $15,000 cash to make up for FMV shortfall.
Exchange of Nonmonetary Assets Case 3: Similar Assets in a Gain Trade without cash receipt example Journal entry:
Accum. Depr., Old House Old House 30,000 200,000
First, remove the old house from the books.
Accum. Depr., Old House Old House Cash 30,000 200,000 15,000
Next, record the cash disbursement.
New House Accum. Depr., Old House Old House Cash 185,000 30,000 200,000 15,000
Finally, record the value of the new house. Notice that this is equivalent to the book value of the old house ($170,000) + the book value of the cash given up ($15,000). Also notice that there is no gain recorded.
Exchange of Nonmonetary Assets Case 4: Similar Assets in a Gain Trade with cash receipt
Exchange of Nonmonetary Assets Case 4: Similar Assets in a Gain Trade with cash receipt Note that this is different than the prior case, when cash was given to make up for FMV shortfall.
When cash is received, the transaction is considered part sale and part exchange. So, a partial gain must be recognized.
When cash is received, the transaction is considered part sale and part exchange. So, a partial gain must be recognized.
Cash Received Recognized gain = FMV asset(s) received + Cash Received
x total gain
Exchange of Nonmonetary Assets Case 4: Similar Assets in a Gain Trade with cash receipt example
BV = $170,000
Note that we expect a gain of $80,000.
BV = $170,000
Note also that we will expect to receive $25,000 cash to make up for FMV shortfall.
BV = $170,000
Note also that we will expect to receive $25,000 cash to make up for FMV shortfall. Therefore, some portion of the $80,000 gain will be recognized. The remainder will be deferred.
First, compute recognized gain:

Cash Received Recognized gain = FMV asset(s) received + Cash Received x total gain

Cash Received Recognized gain = FMV asset(s) received + Cash Received $25,000 $225,000 + $25,000 x total gain
x $80,000

Cash Received Recognized gain = FMV asset(s) received + Cash Received $25,000 $225,000 + $25,000 x total gain
x $80,000
$8,000
Exchange of Nonmonetary Assets Case 4: Similar Assets in a Gain Trade with cash receipt example Journal entry:
Accum. Depr., Old House Old House 30,000 200,000
First, remove the old house from the books.
Cash 25,000 Accum. Depr., Old House 30,000 Old House Gain on Exchange Transaction
200,000 8,000
Then, record the partial gain you just calculated for the transaction and the cash you received for the transaction.
New House 153,000 Cash 25,000 Accum. Depr., Old House 30,000 Old House Gain on Exchange Transaction
200,000 8,000
Finally, record the new house. Note that the new house is valued at the book value of the house given up ($170,000) minus the cash received ($25,000) plus the gain recognized ($8,000).
New House 153,000 Cash 25,000 Accum. Depr., Old House 30,000 Old House Gain on Exchange Transaction
200,000 8,000
Finally, record the new house. Note that the new house is valued at the book value of the house given up ($170,000) minus the cash received ($25,000) plus the gain recognized ($8,000). Another way to look at it: the new house is valued at its FMV ($225,000) minus the gain deferred on the transaction ($72,000).

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Exchange of Nonmonetary Assets Major exchange categories: Dissimilar assets

Exchange of Nonmonetary Assets Major exchange categories: Dissimilar assets

Exchange of Nonmonetary Assets

Case 1: Dissimilar Assets

Exchange of Nonmonetary Assets

Case 1: Dissimilar Assets Asset acquired recorded at FMV of asset given up

Exchange of Nonmonetary Assets Case 1: Dissimilar Assets Example

$50,000 $40,000 $12,000

Exchange of Nonmonetary Assets Case 1: Dissimilar Assets Example

$50,000 $40,000 $12,000

Acquired truck valued at FMV of Crane given up: $12,000

Exchange of Nonmonetary Assets Case 1: Dissimilar Assets Example

$50,000 $40,000 $12,000

Exchange of Nonmonetary Assets Case 1: Dissimilar Assets Example

$50,000 $40,000 $12,000

First, take the Crane off the books.

Then, record the gain on the transaction.

Exchange of Nonmonetary Assets

Case 2: Similar Assets in a Loss Trade

Exchange of Nonmonetary Assets

Exchange of Nonmonetary Assets

Exchange of Nonmonetary Assets Case 2: Similar Assets in a Loss Trade Example

$20,000 $10,000 $9,000

Exchange of Nonmonetary Assets Case 2: Similar Assets in a Loss Trade Example

$20,000 $10,000 $9,000

Note that we expect a loss of $1,000

Exchange of Nonmonetary Assets Case 2: Similar Assets in a Loss Trade Example

$20,000 $10,000 $9,000

First, remove the old car from the books.

Second, record the cash disbursement and the loss on disposal.

Note that we expect a gain of $80,000.

First, remove the old house from the books.

Next, record the cash disbursement.

Note that we expect a gain of $80,000.

First, compute recognized gain:

First, compute recognized gain:

First, compute recognized gain:

First, remove the old house from the books.

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