1. 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

2. 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

3. Exchange of Nonmonetary Assets Case 1: Dissimilar Assets

4. 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

5. Exchange of Nonmonetary Assets Case 1: Dissimilar Assets Example Crane given up: Original cost$50,000 Accum. Depr.$40,000 FMV$12,000 Truck received: FMV $13,200

6. Exchange of Nonmonetary Assets Case 1: Dissimilar Assets Example Crane given up: Original cost$50,000 Accum. Depr.$40,000 FMV$12,000 Truck received: FMV $13,200 Acquired truck valued at FMV of Crane given up: $12,000

7. Exchange of Nonmonetary Assets Case 1: Dissimilar Assets Example Crane given up: Original cost$50,000 Accum. Depr.$40,000 FMV$12,000 Truck received: FMV $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

8. Exchange of Nonmonetary Assets Case 1: Dissimilar Assets Example Crane given up: Original cost$50,000 Accum. Depr.$40,000 FMV$12,000 Truck received: FMV $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 BV = $10,000 Gain = $12,000 – 10,000 = $2,000

9. Exchange of Nonmonetary Assets Case 1: Dissimilar Assets Example Journal entry: Accum. Depr., Crane40,000 Crane50,000 First, take the Crane off the books.

10. Exchange of Nonmonetary Assets Case 1: Dissimilar Assets Example Journal entry: Accum. Depr., Crane40,000 Crane50,000 Gain on Crane disposal2,000 Then, record the gain on the transaction.

11. Exchange of Nonmonetary Assets Case 1: Dissimilar Assets Example Journal entry: Truck12,000 Accum. Depr., Crane40,000 Crane50,000 Gain on Crane disposal2,000 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).

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

13. Exchange of Nonmonetary Assets 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

14. Exchange of Nonmonetary Assets 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

15. Exchange of Nonmonetary Assets Case 2: Similar Assets in a Loss Trade Example Car traded-in: Original cost$20,000 Accum. Depr.$10,000 FMV$9,000 Car received: FMV $13,000

16. Exchange of Nonmonetary Assets Case 2: Similar Assets in a Loss Trade Example Car traded-in: Original cost$20,000 Accum. Depr.$10,000 FMV$9,000 Car received: FMV $13,000 Note that we expect a loss of $1,000 BV = $10,000

17. Exchange of Nonmonetary Assets Case 2: Similar Assets in a Loss Trade Example Car traded-in: Original cost$20,000 Accum. Depr.$10,000 FMV$9,000 Car received: FMV $13,000 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). BV = $10,000

18. Exchange of Nonmonetary Assets Case 2: Similar Assets in a Loss Trade Example Journal entry: Accum. Depr., Old Car10,000 Old Car20,000 First, remove the old car from the books.

19. Exchange of Nonmonetary Assets Case 2: Similar Assets in a Loss Trade Example Journal entry: Loss on disposal, Old Car1,000 Accum. Depr., Old Car10,000 Old Car20,000 Cash4,000 Second, record the cash disbursement and the loss on disposal.

20. Exchange of Nonmonetary Assets Case 2: Similar Assets in a Loss Trade Example Journal entry: New Car13,000 Loss on disposal, Old Car1,000 Accum. Depr., Old Car10,000 Old Car20,000 Cash4,000 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).

21. Exchange of Nonmonetary Assets Case 3: Similar Assets in a Gain Trade without cash receipt

22. 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.

23. 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.

24. Exchange of Nonmonetary Assets Case 3: Similar Assets in a Gain Trade without cash receipt example

25. Exchange of Nonmonetary Assets Case 3: Similar Assets in a Gain Trade without cash receipt example House given up: Original cost$200,000 Accum. Depr.$30,000 FMV$250,000 House received: FMV $265,000 Note that we expect a gain of $80,000. BV = $170,000

26. Exchange of Nonmonetary Assets Case 3: Similar Assets in a Gain Trade without cash receipt example House given up: Original cost$200,000 Accum. Depr.$30,000 FMV$250,000 House received: FMV $265,000 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

27. Exchange of Nonmonetary Assets Case 3: Similar Assets in a Gain Trade without cash receipt example House given up: Original cost$200,000 Accum. Depr.$30,000 FMV$250,000 House received: FMV $265,000 BV = $170,000 Note also that we will need to pay $15,000 cash to make up for FMV shortfall.

28. Exchange of Nonmonetary Assets Journal entry: Accum. Depr., Old House30,000 Old House200,000 First, remove the old house from the books. Case 3: Similar Assets in a Gain Trade without cash receipt example

29. Exchange of Nonmonetary Assets Journal entry: Accum. Depr., Old House30,000 Old House200,000 Cash15,000 Next, record the cash disbursement. Case 3: Similar Assets in a Gain Trade without cash receipt example

30. Exchange of Nonmonetary Assets Journal entry: New House185,000 Accum. Depr., Old House30,000 Old House200,000 Cash15,000 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. Case 3: Similar Assets in a Gain Trade without cash receipt example

31. Exchange of Nonmonetary Assets Case 4: Similar Assets in a Gain Trade with cash receipt

32. 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.

33. Exchange of Nonmonetary Assets Case 4: Similar Assets in a Gain Trade with cash receipt When cash is received, the transaction is considered part sale and part exchange. So, a partial gain must be recognized.

34. Exchange of Nonmonetary Assets Case 4: Similar Assets in a Gain Trade with cash receipt When cash is received, the transaction is considered part sale and part exchange. So, a partial gain must be recognized. Recognized gain = Cash Received FMV asset(s) received + Cash Received x total gain

35. Exchange of Nonmonetary Assets Case 4: Similar Assets in a Gain Trade with cash receipt example House given up: Original cost$200,000 Accum. Depr.$30,000 FMV$250,000 House received: FMV $225,000 Note that we expect a gain of $80,000. BV = $170,000

36. Note also that we will expect to receive $25,000 cash to make up for FMV shortfall. Exchange of Nonmonetary Assets Case 4: Similar Assets in a Gain Trade with cash receipt example House given up: Original cost$200,000 Accum. Depr.$30,000 FMV$250,000 House received: FMV $225,000 BV = $170,000

37. 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. Exchange of Nonmonetary Assets Case 4: Similar Assets in a Gain Trade with cash receipt example House given up: Original cost$200,000 Accum. Depr.$30,000 FMV$250,000 House received: FMV $225,000 BV = $170,000

38. Exchange of Nonmonetary Assets Case 4: Similar Assets in a Gain Trade with cash receipt example First, compute recognized gain: Recognized gain = Cash Received FMV asset(s) received + Cash Received x total gain

39. Exchange of Nonmonetary Assets Case 4: Similar Assets in a Gain Trade with cash receipt example First, compute recognized gain: = $25,000 $225,000 + $25,000 Recognized gain = Cash Received FMV asset(s) received + Cash Received x total gain x $80,000

40. Exchange of Nonmonetary Assets Case 4: Similar Assets in a Gain Trade with cash receipt example First, compute recognized gain: = $25,000 $225,000 + $25,000 Recognized gain = Cash Received FMV asset(s) received + Cash Received x total gain x $80,000 =$8,000

41. Exchange of Nonmonetary Assets Case 4: Similar Assets in a Gain Trade with cash receipt example Journal entry: Accum. Depr., Old House30,000 Old House200,000 First, remove the old house from the books.

42. Exchange of Nonmonetary Assets Case 4: Similar Assets in a Gain Trade with cash receipt example Journal entry: Cash25,000 Accum. Depr., Old House30,000 Old House200,000 Gain on Exchange Transaction8,000 Then, record the partial gain you just calculated for the transaction and the cash you received for the transaction.

43. Exchange of Nonmonetary Assets Case 4: Similar Assets in a Gain Trade with cash receipt example Journal entry: New House153,000 Cash25,000 Accum. Depr., Old House30,000 Old House200,000 Gain on Exchange Transaction8,000 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).

44. Exchange of Nonmonetary Assets Case 4: Similar Assets in a Gain Trade with cash receipt example Journal entry: New House153,000 Cash25,000 Accum. Depr., Old House30,000 Old House200,000 Gain on Exchange Transaction8,000 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).