Customer (Divya Govil) 03/16/2009 12:20 PM

In the second example, we are not recognizing gain and recording Machine B at carrying value of
machine A plus cash paid.
I was wondering about another situation. What if, we dont have any info about Machine Bs fair
value and Machine As !"# Machine As $arrying value....
%et me try to re&phrase the example '&
May be, in an exchange of assets that is deemed to lac( commercial substane, company A gives
up e)uipment with a fair value e)ual to the carrying amount of e)uipment given up. And, it also
contributed cash.
*o, in this case would we assume that we will record the ac)uired asset at carrying value of the
asset given up plus cash paid+
,r, there would be a loss e)ual to cash paid+
-indly provide your inputs. .han(s/ In the second example, we are not recognizing gain and
recording Machine B at carrying value of machine A plus cash paid.
I was wondering about another situation. What if, we dont have any info about Machine Bs fair
value and Machine As !"# Machine As $arrying value....
%et me try to re&phrase the example '&
May be, in an exchange of assets that is deemed to lac( commercial substane, company A gives
up e)uipment with a fair value e)ual to the carrying amount of e)uipment given up. And, it also
contributed cash.
*o, in this case would we assume that we will record the ac)uired asset at carrying value of the
asset given up plus cash paid+
,r, there would be a loss e)ual to cash paid+
-indly provide your inputs. .han(s/

In spite of what the text says about not (nowing fair value, you always (now something. 0ou have to assume that
transactions on the $1A exam are between two (nowledgeable business people. .wo (nowledgeable business
people are going to exchange assets of approximately e)ual value 2approximately only because fair value is
sometimes hard to measure3. If not, one of them is stupid. *o, even on page !4&56, you 7, (now Machine Bs
fair value. It has to be the same as Machine A 2since that is all that was traded3, or one of the people is stupid.
We do not assume stupidity on the $1A exam. .he reason for the transaction on page !4&56 lac(ing commercial
substance is that it is machine for machine. 8othing has really happened. .here is no commercial substance.
*o your basic premise is incorrect 2although not your fault3. 9owever, in your example, with Machine A and cash
given up, Machine B has to be worth the fair value of Machine A plus the cash given up 2why would $ompany A
give cash if it were not trueing up the transaction+3. .hus, the transaction lac(s commercial substance and it
would be a :boot is paid, no gain: and there would be no loss either 2since the boo( value and fair value are
e)ual3. .he ;< would say that the incoming machine is recorded at the outgoing machine plus the cash paid