[MICPA87]

Can someone please try to explain this to me. I’ve been using Becker and even tried Wiley, but I still can’t understand them.

FAR(11/14/11)- 92
AUD(01/04/12)- 91
REG(05/30/12)- 93
BEC(07/21/12)- 88

CPA - Michigan

[ledgermaven]

Nonmonetary Transactions for Fixed Assets: Lacks commercial substance

A transaction lacks commercial substance if the cash flows DO NOT change in their risk, timing and amount;

and, you do not include tax effects when considering cash flows.

If cash flows don't change in their risk, timing or amount then book value is used to record the exchange. You record a realized loss but no gain (unless boot is received by you, then you pro-rate the gain). The acquired assets are recorded at the book value of the assets given up.

The journal entry is

dr. asset received plug

dr. loss (fmv-cv asset given up)

dr. accum. dep.

cr. asset given (historical cost)

Does that help?

[Anonymous]

What can't you understand? What to recognize as g/l?

[MICPA87]

Yes. I understand all the basic rules, but when I read the problem I always have trouble figuring out the basis of the new asset acquired and gain/loss recognized.

FAR(11/14/11)- 92
AUD(01/04/12)- 91
REG(05/30/12)- 93
BEC(07/21/12)- 88

CPA - Michigan

[Anonymous]

There is a very nice handout on this topic in the Yaeger course 🙂

[Anonymous]

Ya I thought this section was super confusing as well. I find it helps to write out the different scenarios. Create a little chart / template for yourself to fill in w/ the basis / old, basis / new, FMV / new, cash / boot (etc) and then figure out what box (quadrant) need to be added / subtracted with what to get the G/L. I'm a very visual-learner, so I thought this helped, so I could remember which box needs to add/subtract with which other box. On the test, you would just need to create your little boxy template and then plug in the givens and solve.

[Author]

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