Chapter 3.5
FAR311627
A transaction was reported as a non-monetary exchange of assets. Under which of the following circumstances should the exchange be measured based on the reported amount of the non-monetary asset surrendered?
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Non-monetary exchanges with commercial substance, use fair value to measure the transaction and treat as if two unrelated events have occurred. Following are the exceptions when carryover basis is used (BV adjusted for cash paid or received as part of the transaction).
FV of asset received and asset given up are both not determinable.
Exchange transaction lacks commercial substance.
Exchange transactions done to facilitate sales to customers.
FAR317430
Asset acquired in a non-monetary exchange of similar assets should be least recorded at:
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An exchange of nonmonetary assets occurs when two entities swap nonfinancial assets. The accounting for a nonmonetary transaction is based on the fair values of the assets transferred. The following set of alternatives should be used for determining the cost at which the asset acquired in an exchange will be recorded in the books, in declining order of preference:
At the fair value of the asset transferred in exchange for it.
At the fair value of the asset received, if the fair value of this asset is more evident than the fair value of the asset transferred in exchange for it.
At the recorded amount of the surrendered asset, if no fair values are determinable or the transaction has no commercial substance.
Thus, the asset acquired in an exchange should never be recorded at the seller’s carrying value of the acquired asset.
FAR311682
A company recently moved to a new building. The old building is being actively marketed for sale, and the company expects to complete the sale in four months. Each of the following statements is correct regarding the old building, except
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The old building meets the criteria for fixed assets held for sale,
Criteria: Plan, Program, Probable, Available, Actively marketed, Change unlikely {PAC (Asset to be packed up reverse count 321)}.
Not subsequently depreciated and classified as other assets on B/S.
Must test for impairment, and impairment should be recognized to the extent CV > NRV. Net realizable value (NRV) is FV less costs to dispose.
When a fixed asset like a building is expected to be sold within a year it should not be measured at historical cost. It should be valued at = NRV (FV-Costs to dispose).
FAR316729
Brill Co. made the following expenditures during 20X2:
Costs to develop computer software for internal use in Brill’s general management information system $100,000
Costs of market research activities 75,000
What amount of these expenditures should Brill report in its 20X2 income statement as research and development expenses?
The expense of acquisition, development, or improvement of a product or process for use in its selling or administrative activities is not part of a research and development (R&D) cost. As the computer software is developed for internal use only, this does not develop or improve a product or a process line of the company's manufacturing and is not a R&D cost. Similarly, market research activity is a selling cost and does not contribute to developing or improving a process or product line and does not come under R&D.