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Understanding NonMonetary Exchanges

I was trying to understand Nonmonetary Exchanges that is part of the Module 10: Fixed Assets from the Wiley 2011 Textbook. 


I came up with the below rules that, as far as I can tell, should cover most cases.  Items 1 and 11 below are special cases that may not necessarily comply with the below rules.  In addition to the special cases, items 9&10 are not directly covered by the below rules with respect to how the Asset Received is recorded.


Rule 1: FV Treatment Vs Exception to FV Treatment


Use the FV treatment if the exception criteria below is not meet.


Exception Criteria

  1. FV is not determinable
  2. Exchange transaction to facilitate sales to customers
  3. Transaction lacks commercial substance


When using FV treatment:

G/L are recorded and asset received is recorded at FV, hence the term “FV Treatment.”


FV treatment or the lack of such treatment only impacts the decision to record a gain.


Rule 2: Losses are ALWAYS recorded due to conservatism. 

It doesn’t matter if Boot is given/received or not involved, commercial substance is lacking or not lacking, and if the FV given is known or unknown.  All these items are irrelevant because a loss is always recorded due to conservatism.


Rule 3: Gains are ONLY recorded when…

  1. the FV Treatment is used (i.e. it doesn’t meet the FV exception Criteria). 
  2. If it falls under the exception criteria of either 2 or 3 from Rule 1 AND boot is received.  If boot is not involved or given, then no gain is recorded under the exception criteria of 2 or 3.


Rule 4: Asset Received is recorded at FV when either Gains or losses are recorded.

Rules 1 & 2 already discuss when to record gains and losses so this helps incorporate rule 3.  When FV Given is known, simply use the formula....


FV given + boot given or subtract boot received. 


If FV given is unknown, simply use FV received


Rule 5: Calculating Gains or loss

When FV given is known, simply use the below formula.  Boot, whether not included, given or received and FV treatment or exception to are irrelevant factors when calculating G/L .


FV Given – BV Given 


When FV Given is unknown, simply substitute the FV Given with the FV received amount in the above formula and add boot received or subtract boot given. So when the FV given is unknown, the base formula is revised as follows:


FV received – BV Given + Boot Received or

FV Received – BV Given – Boot Given  


Said differently, when FV Given is unknown take what you receive and subtract what you are giving, which includes boot.


Clarifying the Usage of Boot:


Understanding Rules 3 and 4 helps to clarify but to explicitly clarify this when can summarize the usage of boot.  Boot is part of calculations when…

1.)     Recording an Asset Given at FV, if the FV Given is known.          

2.)    When calculating G/L, the FV Given is unknown.


Table: Illustration of Various NonMonetary Situations



Gain or Loss Equals…

G/L Recorded?

Asset Received is Recorded….


FV not Determinable

Cannot calculate GL, therefore, N/A

No G/L recorded

BV Given


Loss, No Boot, FV Given is Known

FV Given - BV Given

Record Loss

FV Given


Loss, No Boot, FV Given is Unknown

FV Received - BV Given

Record Loss

FV Received


Loss, Boot Given, FV Given known

Same as 2

Record Loss

FV Given +

Boot Given


Loss, Boot Given, FV Given Unknown

FV Received – (BV Given + Boot Given)

Record Loss

Same As 3


Loss, Boot Received, FV Given is Known

Same As 2

Record Loss

FV Given – Boot Received


Loss, Boot Received, FV Given is Unknown

(FV Received + Boot Received) – BV Given

Record Loss

Same As 3


Gain, No Boot, FV Given is Known, Doesn’t meet FV exception criteria

Same as 2

Record Gain

Same As 2


Gain, No Boot, FV Given is Known, Meets FV Exception Criteria

Same as 2

No Gain is recorded

BV Given


Gain, Boot Given, FV Given is Unknown, Meets FV Exception Criteria

Same as 5

No Gain is recorded

BV Given +

Boot Given


Gain, Boot Received, FV Given is known, meets FV Exception Criteria, FV of Asset Received is Unknown

Boot Received / (Boot Received + FV of Asset Received)


Take the above and multiply it by the Gain (FV Given – BV Given)


Calculating FV of Asset Received when FV is Unknown:

FV Given – Boot Received


Gain Recorded

BV Given – Boot Received + Gain Recognized




FV Received – Gain Deferred

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Comment by shally on March 20, 2013 at 3:31pm

Great explanation about Non-monetary exchanges with a lot of illustrations with different situations. Thanks for this Blog post.

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