Nonmonetary exchange

A nonmonetary exchange is the transfer of assets and/or liabilities with another entity. The most common situation is when two organizations exchange assets, such as a real estate swap or the exchange of one fixed asset for another. The accounting for a nonmonetary exchange 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.