Exchanges of assets

Learning objectives

• Determine the cost of an intangible asset acquired in exchange for another asset.L3
• Recognise an exchange of assets with and without commercial substance.L3
• Assess the commercial substance of an exchange and use the reference fair value (asset given up or asset received).L3

Normative references

• IAS 38 §45An intangible asset acquired in exchange for a non-monetary asset or assets (or a combination of monetary and non-monetary assets) is measured at fair value unless the exchange transaction lacks commercial substance or the fair value of neither the asset received nor the asset given up is reliably measurable; in those cases, its cost is the carrying amount of the asset given up. This measurement applies even if the entity cannot immediately derecognise the asset given up.
• IAS 38 §46To determine whether an exchange has commercial substance, the entity considers the extent to which its future cash flows are expected to change as a result of the transaction. An exchange has commercial substance if (a) the configuration (risk, timing and amount) of the cash flows of the asset received differs from that of the asset transferred, or (b) the entity-specific value of the portion of its operations affected changes as a result of the exchange, and (c) the difference in (a) or (b) is significant relative to the fair value of the assets exchanged. The entity-specific value is determined using post-tax cash flows. The result may be clear without detailed calculations.
• IAS 38 §47The cost of an asset received in exchange must be reliably measurable (paragraph 21(b)). The fair value of an intangible asset is reliably measurable if (a) the variability in the range of reasonable fair value estimates is not significant for that asset, or (b) the probabilities of the various estimates within the range can be reasonably assessed and used. If the entity can reliably measure the fair value of either the asset received or the asset given up, the cost is measured at the fair value of the asset given up 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.

10 questions

• True or false? An intangible asset received in exchange for another asset is measured at fair value, unless the exchange lacks commercial substance or neither the fair value of the asset received nor that of the asset given up can be measured reliably; in that case, its cost is the carrying amount of the asset given up.L2
• Lindora exchanges a broadcasting licence for a broadcasting licence covering another region, held by a peer. The analysis concludes that the exchange lacks commercial substance. The licence given up has a carrying amount of 140,000 and a fair value of 185,000; the licence received has a fair value of 190,000. At what amount does Lindora initially recognise the licence received?L2
• An entity acquires an intangible asset in exchange for another intangible asset. The analysis concludes that the transaction lacks commercial substance. At what amount is the asset received measured?L3
• Orvia gives up its licence to distribute a range of tools (cost {gross_given_up}, accumulated amortisation {acc_amortisation_given_up}) in exchange for a patent held by Kamel, with no cash adjustment. The analysis concludes that the exchange has commercial substance, and the fair value of each of the two assets is reliably measured at {fair_value}. What is the cost of the patent received by Orvia?L3
• The studio Lumaq transfers the rights to a mobile game, carried at {gross_given_up} and amortised by {acc_amortisation_given_up}, to a publisher which gives it in return a licence to use a graphics engine. No additional payment is made. The transaction has commercial substance and the fair value of the two assets, reliably measured, is {fair_value}. At what amount does Lumaq recognise the licence received?L3
• The radio station Ondine exchanges its broadcasting licence in one region (cost {gross_given_up}, accumulated amortisation {acc_amortisation_given_up}) for an equivalent licence in another region, held by a competitor. The documented analysis concludes that the exchange lacks commercial substance; the fair value of each licence is estimated at {fair_value}. Record the exchange entry.L3
• Two small tourism businesses exchange their prospect databases. The one given up by the agency Sirocco is carried at a cost of {gross_given_up}, amortised by {acc_amortisation_given_up}. The exchange has commercial substance, but none of the experts consulted manages to measure reliably the fair value of either database. Record the exchange in Sirocco's books.L3
• During the year, the Castelo group carries out two exchanges of intangible assets, with no cash adjustment. First exchange: it gives up a regional brand with a carrying amount of 120,000 for software; the transaction has commercial substance and the fair value of both assets is reliably measured at 200,000. Second exchange: it gives up a broadcasting right with a carrying amount of 80,000 for a similar right with a fair value of 150,000; the analysis concludes that there is no commercial substance. What is the total cost of the two assets received?L3
• Telvanor exchanges, with no cash adjustment, its broadcasting licence for the North region for the South region licence held by a competitor. The North licence provides stable and recurring advertising revenue; the South licence, in a developing territory, is expected to generate later and more volatile revenue. Both licences have a fair value of 400,000, and the difference between the cash flow profiles is significant relative to that value. Which analysis complies with IAS 38?L3
• Marvesse transfers a customer database, with a carrying amount of {given_carrying_amount}, in exchange for a software operating licence, with no cash adjustment. The exchange has commercial substance. The fair value of the database is reliably estimated at {given_fair_value}, based on recent transactions in comparable databases and within a narrow range. The fair value of the licence received, estimated at {received_fair_value} using an internal model, is reliable but less clearly evident than that of the database given up. What is the cost of the licence received?L3