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Subject Topic: NonMonetary exch. (Topic Closed Topic Closed) Post ReplyPost New Topic
  
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meghna
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Posted: 12 Apr 2010 at 13:22 | IP Logged  

Hi all,

Scott Co.exchanged similar nonmonetary asset with Dale Co. No cash was exchanged .The carrying amount of asset surrendered by scott exceded both thr fair value of asset received and Dale's carrying amount of that asset.If the transaction lacks commercial substance, Scott should recognize the difference betweent he carrying amount of asset it surrendered and

Answers :

-fair value of asset it received as a loss

-fair value of asset it received as a gain

-dale's carrying amount of asset it received as a loss

- dale's carrying amount of asset it received as a gain.

Correct answer is 'a'.

I thought the exchange transaction which lacks commercial substance are recognized at book value. IS IT BEACAUSE THIS IS THE BEST ASNWER AS THERE IS NO ANSWER WITH CARRYING VALUE OF SCOTT...



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mits07
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Posted: 12 Apr 2010 at 13:49 | IP Logged  

Even though transaction lacks commercial substance, loss is recognized immediately under the conservatism principle. Transaction that lacks commercial substance, there is no recognition of gain or loss until you receive boot. However, loss is recognized immediately. 

In this case, the CV exceeded the FV of the asset. There is a loss to recognize.
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bobthecpa
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Posted: 12 Apr 2010 at 14:21 | IP Logged  

Do the Journal Entries while keeping in mind the conservatism principle as mentioned by mits07 and it becomes clear:

Scott's Old Asset @ CV = 10 > New Asset Received @ FV = 8

New Asset    8
Loss Plug      2
   Old Asset      10
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meghna
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Posted: 12 Apr 2010 at 14:36 | IP Logged  

OHHH YEEE..THANKS MITS AND BOB...

I WAS JUST CAUGHT UP IN COMM.EXCHANGE AND BOOK VALUE..



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