Exchanges of assets

Learning objectives

• Assess whether an exchange of assets has commercial substance.L3, L4
• Calculate the cost of the asset received and the gain or loss on the exchange.L3
• Record an exchange of assets with or without commercial substance.L3, L4
• Assess the commercial substance of an exchange on the basis of the expected cash flows.L3, L4
• Determine whether the fair value of the assets exchanged can be measured reliably.L4

Normative references

• IAS 16 §24Exchange for a non-monetary asset (or for a combination of monetary and non-monetary assets): cost is fair value unless the exchange lacks commercial substance or the fair value of neither the asset received nor the asset given up is reliably measurable; in those cases, cost is the carrying amount of the asset given up. The requirement applies even if the entity cannot immediately derecognise the asset given up.
• IAS 16 §25An exchange has commercial substance if the configuration of the cash flows (risk, timing and amount) of the asset received differs from that of the asset transferred, or if the entity-specific value of the portion of the entity's operations affected by the exchange changes, and if that difference is significant relative to the fair value of the assets exchanged; the entity-specific value reflects post-tax cash flows; detailed calculations are not always necessary.
• IAS 16 §26In an exchange of assets, fair value can be measured reliably if the variability in the range of reasonable fair value measurements is not significant for the asset, or if the probabilities of the various estimates within that range can be reasonably assessed and used. If the fair value of either the asset received or the asset given up can be measured, the fair value of the asset given up is used unless the fair value of the asset received is more clearly evident.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

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