It’s given in the Becker pass master questions; "similar" and "dissimilar" asset wording is obsolete and should not be used in the future.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)

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.

Hope this helps payal....