Yola Co and Zaro Co are fuel distributors.  To facilitate the delivery of oil to their costumers, Yola and Zaro exchanged ownership of 1200 barrels of oil without physically moving inventory.  Yola paid $20,000 to compensate for a difference in the grade of oil.  On the date of the exchange, cost and market values of the oil were as follows

            Yola       Zaro

Cost     100k 126k

Market Values130K 150k

In Zaros Income statement, what amount of gain should be reported from exchange of the oil

Answer

This transaction qualifies as an exception to fair value measurement as per ASC topic 845 and should  be measured at book value.  However, when these assets are exchanged  and boot is received and gain result the exchange is treated as part sale and part exchange.  The earnings process is assumed to be complete for the portion relating to the boot received. 

I don't understand why they are they calculating the gain, shouldn't the asset be recorded at book value because per the answer it qualifies as an exception to fair value measurement, and therefore no gain or loss would be recognized. Then again why would it qualify as an exception isn't market value considered Fair Value.

Thanks for any input