Exchange of Nonmonetary Assets (Financial Accounting)

This video explains how to account for exchanges of nonmonetary assets (such as one company swapping trucks with another company). The general rule is to record the asset received at its fair market value and book any gain or loss, unless one of three exceptions applies. The example presented in this video shows the accounting treatment for both firms in the situation where fair market value is used and a gain is recorded.
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[@allyu2305]

this channel is truly a lifesaver! I've watched your tutorials since I started taking accounting classes last year and I've gotten A's in the 3/4 classes I've taken so far! Hopefully I'll have 4/4 A's when I take my intermediate exam this Wednesday. Thank you so much, and greetings from CT!

[@quachuonglilac]

my professor spent 30-45 mins to explain this stuff and I dont understand at all. You save my life!

[@ignaciovaldivia5647]

Thanks for existing. Your are really helping me get my degree.

[@lorraineming4590]

Explaining these concepts in such simple terms is an invaluable skill, bravo !

[@reengord7828]

Very helpful. Studying for FAR, this was easy to follow and understand. I'll be back to see more. Thank you!

[@Edspira]

No problem!

[@satriani005]

did you get it ?

[@MyFinancialFocus]

A noncash transaction. I like seeing this stuff get recorded at the end of the cash flow statement.

[@munisowenby2136]

Perfect explanation, it is very helpful. Thank you!

[@Edspira]

Glad it was helpful!

[@checkHook93]

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[@Edspira]

Welcome aboard!

[@petermai4604]

Thanks for the video Michael. I believe there is one small adjustment here. The rule is to record the asset received at the fair market value of the asset surrendered, unless the fair value of the asset received is more clearly determinable (ASC 845-10-30-1). In your illustration, they were both $4,250 so it did not make a difference. Would you agree? Thanks!

[@dannybans23]

I agree with you - that's the rule under Canadian ASPE. When the fair values of both assets can be reliably measured, the fair value of the asset given up is used to measure the asset received, as you mentioned. ASPE 3831

[@asmircerimovic8785]

Thank you so much

[@davidsavage519]

Shouldnt Bonnie make a debit to COGS of $2000 for the food as well? Or do we not do that since theyre in the business of catering and not selling food by itself?

[@victoriaprisock1323]

Thank you! Your videos are so helpful!

[@barah1124]

Company alpha exchange is equipment fair value old equipment is 19000 book value 14000 alpha also paid 4000 cash Record entry for exchange assuming the exchange has commercial substanc?

[@mohamedkhaled8555]

THANK YOU !

[@cool1u1]

Excellent video

[@ebeymasillamanie8586]

Thanks for the video. I do not however understand how did you figure out $2000 to be the book value of food for Bonnie? because I do not see it mentioned in the question.

[@jewel8334]

same here

[@jewel8334]

+Jewel i think i get what he said.. He forgot to put the original cost. just like the truck

[@A96000]

The 2000 is what it costs Boonies to produce the food. Like 22000 cost of the truck to Thompson. When you credit an asset you do it on cost.

[@FV-mj8hw]

Thanks!

[@Azermaniac]

For Catering business the food COSTs 2000 $
but they exchanged it with other business at RETAIL price 3000 $

[@stevensmith97]

God I love you

[@jjohnson649]

Note to self the good received is recorded(debited) at Fair value while the asset given up is recorded at book value(cost)

[@hazemkamalmaz8772]

what if i can know the FV of my asset but could not for the exchanged asset ? any change could happen ?

[@danielfarr2169]

Is it a little odd, both sides of the exchange have a gain? Or did I miss something?

[@Edspira]

There's never a rule that both companies will always be the same, or always be different. This is just a coincidence.
In Thompson's case, the asset was given an estimated life and depreciated according to the depreciation schedule. At the point of the sale, the truck had an accumulated depreciation of 18,000. The truck was essentially listed on Thompson's books at $4,000 (22,000-18,000). The depreciation schedule is based on the estimated life of the asset, which will most likely be different that the FMV.
For Bonnie's Catering, the initial cost of the food was what she paid at the grocery store. After she spent time cooking the food it increased the value of the food by $1,000 dollars. It makes sense that Bonnie would have a gain in this instance since food is her primary source of operating revenue. Bonnie would be out of business if she sold the food for less than what it cost her.
Thanks for the comment!

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[@annabelle2760]

thank you!