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