| Present Accounting for Nonmonetary Transactions | ||
| 5 | Nonreciprocal Transfers with owners | |
| Examples: | ||
| a. | Distribution of nonmonetary assets to stockholders as a (property) dividend, or | |
| b. | to redeem or acquire outstanding capital stock of the enterprise, or | |
| c. | to effect a corporate liquidation or plans of reorganization that involve disposing of all or a significant segment of the business. | |
| d. | to effect plans of rescission or other settlements relating to a prior business combination, to redeem or acquire shares of capital stock previously issued in a business combination | |
| Accounting for decreases in owners' equity that result from nonreciprocal nonmonetary transactions with owners has usually been based on the recorded amount of the nonmonetary assets distributed | ||
| 6 | Nonreciprocal Transfers with Other than Owners | |
| Examples: | ||
| a. | Contributions of nonmonetary assets by an enterprise to a charitable organization | |
| b. | Contribution of land by a governmental unit for construction of productive facilities by an enterprise | |
| Accounting for the receipt of nonmonetary assets has been based on the fair value of the assets received. | ||
| Accounting for the transferof nonmonetary assets has been based on the recorded amount of the assets relinquished | ||
| 7 | Nonmonetary Exchanges | |
| Examples: | ||
| a. | Exchange of inventory for dissimilar property as a means of selling the product to a customer | |
| b. | Exchange of inventory for similar product as an accommodation-- at least one party to the exchange reduces transportation costs, meets immediate inventory needs or otherwise reduces costs or facilitates ultimate sale of the product-- and not as a means of selling the product to a customer. | |
| 8 | Exchange of productive assets-- asset employed in production-- for similar productive assets or for an equivalent interest in similar productive assets. | |
| Examples: Trade of player contracts, exchange of leases on mineral properties | ||
| Accounting--sometimes based on the fair value of the assets relinquished and sometimes on the recorded amount of the assets relinquished | ||
| 18 | Basic Principle | |
| In general, accounting for nonmonetary transactions should be based on the fair values of the assets (or services) involved, which is the same basis as that used in monetary transactions | ||
| The cost of a nonmonetary asset acquired in exchange for another nonmonetary asset is the fair value of the asset surrendered to obtain it, and a gain or loss should be recognized on the exchange. The fair value of the asset received should be used to measure the cost if it is more clearly evident than the fair value of the asset surrendered. | ||
| Similarly, a nonmonetary asset received in a nonreciprocal transfer should be recorded at the fair value of the asset received. | ||
| A transfer of a nonmonetary asset to a stockholder or to another entity should be recorded at the fair value of the asset transferred, and a gain or loss should be recognized on the disposition of the asset. | ||
| Modifications of the basic principle (Italized text represent modifications in APB No. 29, Para. 20 by FAS Statement No. 153) | ||
| 20 | The accounting for a nonmonetary exchange shall be based on the recorded amount (after reduction, if appropriate, for an indicated impairment of value) of the nonmonetary asset relinquished, and not on the fair value of the transferred asset, if any of the following conditions apply. | |
| a. | Fair Value Not Determinable. The fair value of neither the asset(s) received nor the asset(s) relinquished is determinable within reasonable limits (paragraph 25). | |
| b. | Exchange Transaction to Facilitate Sales to Customers. The transaction is an exchange of a product or property held for sale in the ordinary course of business for a product or property to be sold in the same line of business to facilitate sales to customers other than the parties to the exchange. | |
| c. | Exchange Transaction That Lacks Commercial Substance. The transaction lacks commercial substance (paragraph 21). | |
| 20 | (this
paragraph is deleted under FAS 153 and replaced by the
above
text) Fair value not determinable. Accounting for a nonmonetary transaction should not be based on the fair values of the assets transferred unless those fair values are determinable within reasonable limits. |
|
| Commercial Substance (Italized text represent modifications in APB No. 29, Para. 21 by FAS 153) | ||
| 21 | There are two steps necessary to determine whether a nonmonetary exchange has commercial substance. In the first step, the entity determines whether its future cash flows are expected to change as a result of the exchange. To do this the entity considers whether: | |
| a. | The configuration (risk, timing, or amount) of the expected future cash flows of the asset(s) received differs from the configuration of the expected future cash flows of the asset(s) transferred, or | |
| b. | The
entity-specific
value* of the portion of the reporting entity’s
operations affected by
the
transaction changes as a result of the exchange.
If the
entity’s
future cash flows are expected to change as a result
of the exchange,
in
the second step the entity assesses whether either of
the differences
in
(a) or (b) is significant relative to the fair value
of the assets
exchanged.
If either of the differences is significant, the
transaction has
commercial
substance. In the United States and some other tax
jurisdictions, tax
rules
provide that a transaction is not to be given effect
for tax purposes
unless
it serves a legitimate business purpose other than tax
avoidance.
Commercial
substance must not be predicated on tax cash flows
that arise solely
because
the tax business purpose is based on achieving a
specified financial
reporting
result. *Entity-specific value is discussed in paragraph 24 of FASB Concepts Statement No. 7, Using Cash Flow Information and Present Value in Accounting Measurements. |
|
| 21 | (this
paragraph is deleted by FAS 153and replaced by
the above
text) Exchanges. If the exchange is not essentially the culmination of an earning process, accounting for an exchange of a nonmonetary asset between an enterprise and another entity should be based on the recorded amount (after reduction, if appropriate, for an indicated impairment of value) of the nonmonetary asset relinquished. Two types of nonmonetary transactions do not culminate an earning process: |
|
| a. | An exchange of a product or property held for sale in the ordinary course of business for a product or property to be sold in the same line of business to facilitate sales to customers other than the parties to the exchange | |
| b. | An exchange of a productive asset not held for sale in the ordinary course of business for a similar productive asset or an equivalent interest in the same or similar productive asset. | |
| 22 | If an amount of
monetary consideration
is involved in the exchange of nonmonetary assets that
would otherwise
be based on the recorded amounts, the recipient of
the monetary consideration has realized
gain
on the exchange to the extent that the amount of the
monetary receipt
exceeds
a proportionate share of the recorded amount of the asset
surrendered.
The portion of the cost applicable to the realized amount
should be
based
on the ratio of the monetary consideration to the total
consideration
received
(monetary consideration plus the estimated fair value of
the
nonmonetary
asset received), or if more clearly evident, the fair
value of the
nonmonetary
asset transferred.
The entity paying the monetary consideration should not recognize any gain; the asset received should be recorded at the amount of monetary consideration paid plus the recorded amount of the nonmonetary asset surrendered. If a loss is indicated by the terms of a transaction described in this paragraph or in paragraph 21, the entire indicated loss on the exchange should be recognized. |
|
| Nonreciprocal Transfers to Owners | ||
| 23 | Distribution of nonmonetary assets to owners of an enterprise in a spin-off or other form of reorganization or liquidation or in a plan that is in substance the rescission of a prior business combination should be based on the recorded amount of the nonmonetary assets distributed. | |
| Other nonreciprocal transfers of nonmonetary assets to owners should be accounted for at fair value of the nonmonetary asset distributed (if objectively measurable.) | ||