FAR Study Group October November 2013 - Page 30

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  • September 19, 2013 at 3:41 am #476428
    Anonymous
    Inactive

    OK, how 'bout this:

    Lack commercial substance – no change in cash flows – use book value

    With commercial substance – change in cash flows – use FV

    Does that work as a general rule? I wish there were more practice questions on this point. (I can't believe I just said that… HA!)

    September 19, 2013 at 4:00 am #476361
    Monir
    Member

    I don't know what is the general rule is. I first determine or identify whether it's CS or Lack of CS then i apply the rule. for lack of CS , things could be little crazy if you receive boot ( no boot no gain, boot given no gain or loss , only when u received). you will get it , just practice Becker illustration. I will make sense trust me.

    Thx

    September 19, 2013 at 4:00 am #476430
    Monir
    Member

    I don't know what is the general rule is. I first determine or identify whether it's CS or Lack of CS then i apply the rule. for lack of CS , things could be little crazy if you receive boot ( no boot no gain, boot given no gain or loss , only when u received). you will get it , just practice Becker illustration. I will make sense trust me.

    Thx

    September 19, 2013 at 4:08 am #476363
    NYCaccountant
    Participant

    @ DJN yes. If there is a change in cash flows (commercial substance) then the transaction has commercial substance and you would use the fair value of the asset given up to record the value of the asset received. If the transaction lacks commercial substance (meaning there is no change in cash flows) then you would use book value of the asset given up to record the value of the asset received.

    FAR - 93
    REG - 87
    BEC - 84!!!!
    AUD - 99!!!!!! CPA exam complete.

    September 19, 2013 at 4:08 am #476432
    NYCaccountant
    Participant

    @ DJN yes. If there is a change in cash flows (commercial substance) then the transaction has commercial substance and you would use the fair value of the asset given up to record the value of the asset received. If the transaction lacks commercial substance (meaning there is no change in cash flows) then you would use book value of the asset given up to record the value of the asset received.

    FAR - 93
    REG - 87
    BEC - 84!!!!
    AUD - 99!!!!!! CPA exam complete.

    September 19, 2013 at 4:12 am #476365
    NYCaccountant
    Participant

    Thats the most basic rule. Now it's a lil different when boot is involved.

    FAR - 93
    REG - 87
    BEC - 84!!!!
    AUD - 99!!!!!! CPA exam complete.

    September 19, 2013 at 4:12 am #476434
    NYCaccountant
    Participant

    Thats the most basic rule. Now it's a lil different when boot is involved.

    FAR - 93
    REG - 87
    BEC - 84!!!!
    AUD - 99!!!!!! CPA exam complete.

    September 19, 2013 at 4:12 am #476367
    Anonymous
    Inactive

    Thant makes so much more sense now! Thank you Monir and NYCaccountant!

    Now that I have this down I'll work it a little more and move on to ones with boot.

    Ah; the little victories… 😉

    September 19, 2013 at 4:12 am #476436
    Anonymous
    Inactive

    Thant makes so much more sense now! Thank you Monir and NYCaccountant!

    Now that I have this down I'll work it a little more and move on to ones with boot.

    Ah; the little victories… 😉

    September 19, 2013 at 4:15 am #476369
    ZSRizvi
    Member

    @NYC

    So you're saying that the number of warrants is based on the number of shares that will be issued upon conversion?

    @DJN

    As I recall it, under both commercial substance and lacking commercial substance, you use the FV as the basis for determining the consideration you received.

    Under commercial substance, you use the book value to determine any gain.

    So, let's say you exchanged a truck that had a carrying value of $100,000. It's fair value at the time of exchange was $105,000. You would have a gain of $5,000. Any cash paid isn't used in gain determination.

    However, let's say you also paid $5,000 in cash as well and received a building in return. What would be the basis of the building now in your books?

    It would be FV of truck given up ($105,000) + Cash Paid ($5,000) = $110,000= Carrying value of building on your books.

    So, in summary, for exchanges with commercial substance:

    Book value = use for gain determination.

    Fair value given up (+any cash paid) = use to determine basis of asset received on your books

    Was that a bit helpful? I know it can get pretty confusing…

    EDIT: NYC beat me to it. Well, it's explained better than mine anyway LOL.

    BEC (July 2013)
    FAR (OCT 2013)
    REG (NOV 2013)
    AUD (JAN 2014)

    The CPA Exam is an opponent that not even the Fellowship of the Ring would want to come across.

    I have a long...long...journey ahead of me.

    September 19, 2013 at 4:15 am #476438
    ZSRizvi
    Member

    @NYC

    So you're saying that the number of warrants is based on the number of shares that will be issued upon conversion?

    @DJN

    As I recall it, under both commercial substance and lacking commercial substance, you use the FV as the basis for determining the consideration you received.

    Under commercial substance, you use the book value to determine any gain.

    So, let's say you exchanged a truck that had a carrying value of $100,000. It's fair value at the time of exchange was $105,000. You would have a gain of $5,000. Any cash paid isn't used in gain determination.

    However, let's say you also paid $5,000 in cash as well and received a building in return. What would be the basis of the building now in your books?

    It would be FV of truck given up ($105,000) + Cash Paid ($5,000) = $110,000= Carrying value of building on your books.

    So, in summary, for exchanges with commercial substance:

    Book value = use for gain determination.

    Fair value given up (+any cash paid) = use to determine basis of asset received on your books

    Was that a bit helpful? I know it can get pretty confusing…

    EDIT: NYC beat me to it. Well, it's explained better than mine anyway LOL.

    BEC (July 2013)
    FAR (OCT 2013)
    REG (NOV 2013)
    AUD (JAN 2014)

    The CPA Exam is an opponent that not even the Fellowship of the Ring would want to come across.

    I have a long...long...journey ahead of me.

    September 19, 2013 at 7:05 am #476371
    ZSRizvi
    Member

    This was a nice little mood-lifter: CPAs getting recognized at the Emmys. LOL.

    https://blog.aicpa.org/2012/09/cpas-win-big-at-the-emmys.html

    BEC (July 2013)
    FAR (OCT 2013)
    REG (NOV 2013)
    AUD (JAN 2014)

    The CPA Exam is an opponent that not even the Fellowship of the Ring would want to come across.

    I have a long...long...journey ahead of me.

    September 19, 2013 at 7:05 am #476440
    ZSRizvi
    Member

    This was a nice little mood-lifter: CPAs getting recognized at the Emmys. LOL.

    https://blog.aicpa.org/2012/09/cpas-win-big-at-the-emmys.html

    BEC (July 2013)
    FAR (OCT 2013)
    REG (NOV 2013)
    AUD (JAN 2014)

    The CPA Exam is an opponent that not even the Fellowship of the Ring would want to come across.

    I have a long...long...journey ahead of me.

    September 19, 2013 at 11:05 am #476373
    NYCaccountant
    Participant

    “The hardest sim I've had to do in Wiley is the business combination SIM by far! Took me 47 minutes to complete, but I got the whole thing correct. I bet the sims will look like this on the exam unfortunately. Anybody has a solution to do business combinations quickly? There were about 100 boxes to fill out!” Hey does anybody know a faster way to these? Will the exam have a sim with so many boxes?

    FAR - 93
    REG - 87
    BEC - 84!!!!
    AUD - 99!!!!!! CPA exam complete.

    September 19, 2013 at 11:05 am #476442
    NYCaccountant
    Participant

    “The hardest sim I've had to do in Wiley is the business combination SIM by far! Took me 47 minutes to complete, but I got the whole thing correct. I bet the sims will look like this on the exam unfortunately. Anybody has a solution to do business combinations quickly? There were about 100 boxes to fill out!” Hey does anybody know a faster way to these? Will the exam have a sim with so many boxes?

    FAR - 93
    REG - 87
    BEC - 84!!!!
    AUD - 99!!!!!! CPA exam complete.

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