It’s given in the Becker pass master questions; "similar" and "dissimilar" asset wording is obsolete and should not be used in the future. Use of “similar” and “dissimilar” was valid till late 2004 until SFAS 153 on exchange of non-monetary assets was issued.

But who knows?

Dissimilar exchanges – having commercial substance:-

A dissimilar exchange, involves the exchange of one asset for another asset that performs a different function. Trading in an old truck for machinery is an example of a dissimilar exchange.

As a result of this exchange, future cash flows are expected to change significantly.

Similar exchanges – lacking commercial substance:-

A similar exchange involves the exchange of one asset for another asset that performs the same type of function. Trading in an old delivery truck to purchase a new delivery truck is an example of a similar exchange.

Future cash flows would not be impacted significantly in such type of exchanges.

Dissimilar exchanges – having commercial substance

Steps - accounting treatment:-

1.      Recognize gain/loss

      Gain/Loss = FV of the asset given up – BV of the asset given up

2.      Record the asset received at the basis calculated as below:-

      Record the new asset received at FV of the asset received or at the FV of the assets given up plus cash paid, whichever is more evident.

3.      Journal entry :-

      DR New asset (FV as calculated above)

      DR Accumulated Depreciation of the asset given up

      DR Cash received

      DR Loss (if any, as calculated above)

      CR        Old asset at historical cost

      CR       Cash paid

      CR        Gain (if any, as calculated above)

They don't call it simmilar and dissimilar any more

Now it's exchange that has commercial substance and lacks commercial substance

u assume that it has commercial substance unless one of these 3 criteria is met

I call it Triple F

1-Fmvs unknown

2-Facilitate sales

3-Future cash flows unchanged

or if the Q specifies that it lacks commercial substance

U should recognize loss in all cases because of conservatism

If it has commercial substance U recognize gain cause it's commercial

to compute gain or loss:

U should compare Fv of assets given up Vs book value of assets given up

If u don't know the the Fv of the assets given up (don't give up)

use the FV of the assets received

If FVS are Unknown (no 1 above) no gain or loss recognized cause u have notthing to cmpare

for no 2 and 3 u recognize gain in one case when u get Booty

1- determine the percentage of the booty

don't forget to put the booty up and down in the formula

Booty/booty+fmv received

If the percentage is less than 25% the realized gain should be recognized up to that percentage

If it's 25% or more all realized gain will be recognized

hope it helps

Similar exchanges – lacking commercial substance:-

Steps:-

1.      Recognize gain/loss

      Gain/Loss = FV of the asset given – BV of the asset given

i.)                    Boot is paid = No Gain

ii.)                   No Boot received = No Gain

iii.)                 Boot received = Recognize gain

n        If boot >25% of the total consideration (including boot received), recognize all gain

n        If boot <25% of the total consideration (including boot received), recognize gain proportionately:-

                Gain * Total boot received

                                                            Total consideration received

iv.)                 Losses = Always recognize in full

2.      Record the asset received at the basis calculated as below:-

      It would depend upon the gain/loss being recognized, cash paid/received.

I would advise to go through different scenarios where boot is received, boot is paid, FV is known/unknown.

Try to write down the journal entries and fill in the numbers ! It would be the best way to understand each and every scenario as in Step 1 above.

Becker study material covers some good examples on different scenarios. I am not sure which material you are referring. Anyways, again emphasize on journal entries in different situations and do lots of MCQs.

In case, you face any specific doubt in any scenario/MCQ, I would be glad to help!