FAR 3_06

  1. How are gains and losses recognized in an exchange having commercial substance? How are they calculated? What is the basis in the asset acquired?
    • Yes
    • Fair value of asset given - book value of asset given = Gain (Loss)
    • Note that boot paid or received is not considered in the determination of gain/loss. It does affect basis.
    • Basis: FV of assets given + FV of boot given + PV of liability assumed = Cost paid for asset received
  2. During an exchange of assets between two entities, how can you determine if the exchange has commercial substance?
    • It results in a significant change in
    • … future cash flows OR
    • … the risk of receiving future cash flows OR
    • … the timing of receiving future cash flows
  3. How do GAAP and IFRS differ when recognizing gain/loss in an exchange that has commercial substance?
    • GAAP: Gain / Loss is recognized
    • IFRS: If items exchanged are dissimilar recognize gain/loss
    • … If items are similar, loss may be recognized, but not gain.
  4. How are gains and losses recognized in an exchange that lacks commercial substance and no boot is received? What is the basis of the asset acquired?
    • No gains recognized; Losses are always recognized
    • Basis of new asset = Fair Value of asset given, plus any boot given + amt of assumed liabilities
  5. How are gains and losses recognized in an exchange that lacks commercial substance and boot is paid? What is the basis of the asset acquired?
    No gain recognized; Losses are always recognized
  6. How are gains and losses recognized in an exchange that lacks commercial substance and boot received is <25% of the total consideration? What is the basis of the asset acquired?
    Gain is recognized in the same proportion as the boot received; Losses are always recognized
  7. How are gains and losses recognized in an exchange that lacks commercial substance and boot given or received is >25% of the total consideration? What is the basis of the asset acquired?
    This is now considered a monetary exchange. Gains and losses in their entirety are recognized by both parties.
  8. How are gains and losses recognized for an involuntary conversion? If a replacement asset is obtained from the proceeds, what is the basis of the new asset?
    • Recognize gain and loss as if the item were sold. The proceeds from either insurance payment or condemnation award are reduced by deductions and other amounts to clear the property.
    • The involuntary conversion isn’t considered when obtaining a replacement asset. The new asset is treated as if purchased without any history.
Author
BethM
ID
338331
Card Set
FAR 3_06
Description
Becker Review 2018
Updated