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student007
Sep 28, 2006, 11:42 AM
Let's say there are 2 companies: A and B.
A has a capital asset:
cost = 100
accum. Amort = 20

B has a capital asset
cost = 200
accum. Amort = 35

Both have a market value of between 150 and 300.

If these companies choose the trade the assets with each other, what entries would take place?

Here's what I think (from A'a point of view)
Cr. Equipment 100
Dr. Accum. Amort 20
then what?

and for the acquisition of the other asset:
Dr. Equipment 200 (or do I dr equipment by 200-35?)

Thanks.

CaptainForest
Sep 28, 2006, 07:06 PM
When no cash is exchanged, it is a Nonmonetary transaction.

Then the question becomes whether there is commercial substance or not.
The general rule is that if your economic situation has changed due to this transaction, then commercial substance existed. However, if your economic situation has not changed, then there is no commercial substance to it.


Nonmonetary exchange, no commercial substance
Company A
Dr. Accumulated Amortization 20
Dr. New Asset 80
Cr. Old Asset 100

Company B
Dr. Accumulated Amortization 35
Dr. New Asset 165
Cr. Old Asset 200


Nonmonetary exchange, with commercial substance
- would need to know the FMV of the assets to properly calculate