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Hi Sir,
i extracted ths from the standard what does it mean i am not able to understand the commercial substance part the standard states the following are the cases in whic there is commercial substance.Need your help here
a) the configuration (risk, timing and amount) of the cash flows of the asset
received differs from the configuration of the cash flows of the asset
transferred; or
(b) the entity-specific value of the portion of the entity’s operations affected by
the transaction changes as a result of the exchange; and
(c) the difference in (a) or (b) is significant relative to the fair value of the
assets exchanged.I think what you’re looking at here is the ability of drafts-persons to design contracts which, although they look reasonable on the surface, are in fact just a way to classify matters NOT according to their commercial reality.
So, in your first example, the present value of cash flows to be received is not really in line with the cash flows which could have been expected to be received if the asset had not been transferred
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