question archive The cost of a nonmonetary asset acquired in exchange for another nonmonetary asset when the exchange has commercial substance is usually recorded at A) the fair value of the asset given up, and a gain or loss is recognized
The cost of a nonmonetary asset acquired in exchange for another nonmonetary asset when the exchange has commercial substance is usually recorded at A) the fair value of the asset given up, and a gain or loss is recognized
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The cost of a nonmonetary asset acquired in exchange for another nonmonetary asset when the exchange has commercial substance is usually recorded at
A) the fair value of the asset given up, and a gain or loss is recognized.
B) the fair value of the asset given up, and a gain but not a loss may be recognized.
C) the fair value of the asset received if it is equally reliable as the fair value of the asset given up.
D) either the fair value of the asset given up or the asset received, whichever one results in the largest gain (smallest loss) to the company
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Ans
A) The fair value of the asset given up, and a gain or loss is recognized.
The companies account the exchange of monetary assets with another monetary asset if there is a commercial substance, on the fair value of assets given up or received and also the gain or loss also accounted. But if there is no commercial substance the exchange is recorded at the book value of assets. The existence of commercial substance is important and its determined on the basis of changes in the economic positions of the asset. Usually commercial substance is identified when there is future cash flows, risk, and time value is involved. Therefore exchange of non monetary assets with commercial substance is at its fair value of the assets given up, and a gain or loss is recognized.
