Exchange of nonmonetary assets definition

What is an Exchange of Nonmonetary Assets?

An exchange of nonmonetary assets occurs when two entities swap nonfinancial assets. The accounting for a nonmonetary transaction is based on the fair values of the assets transferred. This results in the following set of alternatives for determining the recorded cost of a nonmonetary asset acquired in an exchange, in declining order of preference:

  1. At the fair value of the asset transferred in exchange for it. Record a gain or loss on the exchange.

  2. At the fair value of the asset received, if the fair value of this asset is more evident than the fair value of the asset transferred in exchange for it.

  3. At the recorded amount of the surrendered asset, if no fair values are determinable or the transaction has no commercial substance.

Related AccountingTools Courses

Fixed Asset Accounting

How to Audit Fixed Assets

Accounting for an Exchange of Nonmonetary Assets

There can be any number of variations on the nonmonetary exchange concept, including ones where some cash is exchanged, along with other nonmonetary assets. If there is a significant amount of monetary consideration paid (known as boot), the entire transaction is considered to be a monetary transaction. In GAAP, a significant amount of boot is considered to be 25% of the fair value of an exchange. Conversely, if the amount of boot is less than 25%, the following accounting applies:

  • Payer. The party paying boot is not allowed to recognize a gain on the transaction (if any).

  • Recipient. The receiver of the boot recognizes a gain to the extent that the monetary consideration is greater than a proportionate share of the carrying amount of the surrendered asset. This calculation is based on the percentage of monetary consideration received to either:

    • Total consideration received, or

    • The fair value of the nonmonetary asset received (if more clearly evident)

    • Nonmonetary exchanges of inventory should be recognized at the carrying amount of the inventory transferred (not their fair values).