How is cash treated in a nonmonetary transaction?
In a nonmonetary transaction, either party may have to contribute some amount of cash to make the transaction “fair”. If the cash is paid, then the fair value of the asset received would be equal to the fair value of the asset received + cash paid. If cash is received, the fair value of the asset received is equal to the fair value of the asset given up – cash paid.
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What is a nonmonetary exchange?
Nonmonetary transactions are nonreciprocal transfers (transfer of assets or services to another individual or company). The fundamental concepts of nonmonetary transactions per U.S. Generally Accepted Accounting Principles (GAAP) are those transactions that either contain or lack commercial substance. Generally, accounting for nonmonetary exchanges will be based on the assets fair market value. If the fair […]
What is commercial substance is a nonmonetary exchange?
When determining if a nonmonetary exchange has commercial substance, the key factor that will be applied is if the exchange is expected to cause significant changes to the entity’s future cash flows. Commercial substance will exist if the future cash flows change as a result of the transaction. The entity’s future cash flows will be […]
What is “boot” in a nonmonetary exchange?
When two parties are exchanges similar assets, its going to be very rare that they have the exact same fair market value. So what is the solution? Well, one party would throw in cash or another asset to make the trade even, and that is known as “boot”! When cash or other property is added, […]