(1)
Nonmonetary Exchange
Exchange of non-monetary assets for another non-monetary asset is known as nonmonetary exchange.
Exchange has commercial substance:
If an exchange (Example: exchange of land for another non-monetary asset other than land) is likely to have a change in the future cash flows, then it is known as exchange has commercial substance. In this case, an exchange of non-monetary assets, which have commercial substance, is recorded at its fair value, and then resulted gain or loss must be recognized by determining the difference between the fair value and book value.
Exchange lacks commercial substance:
If an exchange (Example: exchange of land for another land) is expected that it will not change the future cash flows, then such exchange is known as exchange lacks commercial substance. In this case, an exchange lacks commercial substance; therefore new non-monetary asset would be valued at the book value of the old non-monetary asset.
To determine: The fair value of the new parcel land, which is received by Company T.
(2)
To prepare: The
(3)
To prepare: The journal entry, to record the exchange of old land for new parcel land, assumes that the exchange lacks commercial substance.
(4)
To prepare: The journal entry, to record the exchange of old land for new parcel land, which lacks commercial substance.
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