[msbeyene]

Hello,

I am have trouble with calculating the formula for calculating total consideration on tranasactions that lack commercial substance. I am using becker and there seems to be an inconsistaency in what is “total consideration” includes:

Is total consideration: Boot (cash) + FV of asset recieved

Or jUst FV of asset recieved

Please Help! test in few days.

Thanks

BEC - PASSED
REG- PASSED
FAR - PASSED
AUD- 08/27/13

[iampei]

1) Exchange WITH Commercial Substance = Recognize all gain

2) Exchange without Commercial substance:

a) If you PAY boot = no gain

b) If you receive boot that is LESS than 25% of the total consideration = Gain is recognized proportionally.

– Boot / (FMV of Asset Acquired + Boot) = proportion %

then you…

– proportion % x (FMV-Carrying Cost of the Asset Given Up) = proportional gain recognized

c) If you receive boot that is EQUAL TO or MORE than 25% = All gain is recognized

All losses are recognized regardless of any of the rules provided above.

[mangos]

From what I understand you're supposed to use the fair value of whichever asset is more evident. If the fair value of the asset you're giving up is not given, then the fair value of the asset received is used (which I assume includes boot paid to you).

FAR (5/07/13): 96

[msbeyene]

THANK YOU!

BEC - PASSED
REG- PASSED
FAR - PASSED
AUD- 08/27/13

[Author]

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