- This topic has 1 reply, 2 voices, and was last updated 7 years ago by
.
- Posts
Hi,
I would like to know how to account for the loss on exchange of assets without commercial substance. I found one textbook which mentioned that the loss should be recognised immediately, however, another textbook mentioned that the loss should not be recognised. Which one is correct?
I also check IAS 16, however, I cannot find the relevant information. The standard only mentions [IAS16.24] the following:
“One or more items of property, plant and equipment may be acquired in exchange for a
non-monetary asset or assets, or a combination of monetary and non-monetary assets. The following discussion refers simply to an exchange of one non-monetary asset for another, but it also applies to all exchanges described in the preceding sentence. The cost of such an item of property, plant and equipment is measured at fair value unless (a) the exchange transaction lacks commercial substance or (b) the fair value of neither the asset received nor the asset given up is reliably measurable. The acquired item is measured in this way even if an entity cannot immediately derecognise the asset given up. If the acquired item is not measured at fair value, its cost is measured at the carrying amount of the asset given up.”I’m wondering why you’re bothering!
I believe the last two sentences of the extract from IAS 16 give you some idea of the treatment – “The acquired item is measured in this way even if an entity cannot immediately derecognise the asset given up. If the acquired item is not measured at fair value, its cost is measured at the carrying amount of the asset given up”
If we’re having to derive the fair value of an item but are unable to measure reliably the value of the exchanged item, then cost of the acquired item is measured as the value of the asset given up
One way or another we should be able to arrive at the loss arising on the non-commercal transaction and write that loss off
However, now you’ve opened another can of worms! It would be illegal for a public company to acquire a non-cash asset in exchange for an issue of shares where the value of that acquired asset is lower than the nominal value of the shares issued
But this is a matter for papers way beyond F7
OK?
- The topic ‘Exchange of assets without commercial substance’ is closed to new replies.