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 expected to significantly change if one of the following exists:
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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 […]