Exchange assets : are the exchange of one or more non-monetary assets or a combination of monetary and non-monetary assets.
In this article, we will refer to non-monetary assets.
The following diagram shows how should be recognized these assets.
It is essential to say that this form of accounting recognition applies only to commercial transactions.
Exchange assets present the following characteristics.
1) 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.
2) The entity-specific value of the portion of the entity’s operations affected by the transaction changes due to the exchange.
3) The difference in (1) or (2) is significant relative to the fair value of the assets exchanged.
For example, company A owns a building whose fair value amounts to 200,000, and on the other hand, entity B has a machine whose fair value equals 90,000.
Company A is willing to give up the building to entity B because the machine has a more significant weight in strategic terms for this entity.
On the other hand, entity B is willing to receive the building and deliver the machine because this exchange increases the assets value company.
This example represents a commercial transaction because there is a change in every company’s cash flow and each entity’s specific value.
In other words, while entity B increases the value of the assets due to this exchange, company B decreases its equity due to this operation.
In addition to the above, the difference between the fair value of the assets exchanged is significant.
The accounting recognition of exchange assets is shown below.
As you can see in the scheme, if an entity can measure the fair value of the asset given up reliably, an entity will recognize the asset received at the fair value of the asset given up.
So, entity A and entity B must recognize the asset received by reference to the asset’s fair value given up.
That is, entity A, for 200,000 and entity B, for 90,000
Let’s look at another example:
Exchange assets examples
Example 1 :
In January of year 1, Company A acquired a warehouse for 15,000 with a useful life of 30 years.
At the end of year 5, this entity decided to exchange this warehouse for a machine that has a fair value of 7,000.
The fair value of the warehouse is 17,000.
The accounting recognition is as follows:
As can be seen, entity A recognized the asset received by reference to the fair value of the asset given up, that is, for 17,000.
Now, let’s look at an example of exchange assets where the asset’s fair value cannot be measured reliably.
Example 2 :
Company A, own at the end of year 9, a telecommunications equipment with a historical cost of 40,000 and an accumulated depreciation of 12,000.
In December of this year, the management of this entity decided to exchange this asset for a building with a fair value of 45,000.
The accounting recognition is as follows.