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I was digging through some old threads and came across this explanation by user: Go2134
Non-Monetary Exchages WITH Commercial Substance:
Say you bought a deck of Pokemon cards for $10 (BV), and you got a Charizard, which is worth $100 (FV) if you sell it on Jeffslist (c). I’m ridiculously jealous so I want to trade you for it.At first, I offer you some Dunkaroo’s. Like a pallets worth from Jeff’s Club (c) worth $120 (FV). I tell you I’ll trade you my delicious snacks for your Charizard, but you’ll have to thrown in an extra $20 so that it’s a FAIR trade.
If you agree, I don’t care how much you Gained, keep it to yourself.
Gain = FV – BV of Charizard: $100 – $10 = $90 Gain. (Note that this has nothing to do with the cash you paid or my FV.)
Your Basis in the New Asset of Dunkaroo’s: FV given up + Cash paid: $100 + $20 = $120 would be your Basis.
Your Journal Entry would be: (Db) Dunkaroo’s for $120; (Cr) Charizard for $10; (Cr) Gain for $90; (Cr) Cash for $20.
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You decide you don’t want to develop diabetes and lose a leg from all those Dunkaroo’s, so you turn me down. Instead of a sugar-induced coma, you ask me to trade Pokemon cards instead. Fine. Since moms can’t tell the difference between a pikachu from a snorlax, she won’t get mad at you for trading away your Charizard.
I offer you a whole deck of Pokemon cards. They’re similar enough that mom won’t be able to tell the difference; they lack commercial substance. The deck is worth $12 retail, but I really want that Charizard, so I don’t care that I’m giving you extra value.
Since no “boot” is exchanged, we both record the exchange using our same basis:
You record the Deck at $10. I record Charizard at $12 (sucker…my deck is sick now).
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OK, this is taking too long and I have way too much to do, lol.
Assume that Cash Paid/Received is 20% of the total FV given up (i.e., Lacks Commercial Substance)
If you PAY Cash in a Non-Monetary Exchange, your New Basis is your OLD BV + Cash Paid.
If you RECEIVE Cash (<25% of Assets Received): Recognize a Proportional Gain:
BV of Machine A = $60
FV of Machine A = $100
Theoretical Gain = $40
FV of Machine B = $90
Cash Received = $10
Your Gain = $100(FV) – $60(BV) = $40 Gain (Note that this is NOT the answer.)
% of Boot in the Amount Received = $10/$100 = 10% (This will be the Proportional Gain to recognize)
Your New Basis in Machine B = Old BV – Boot Received + % Gain Recognized
= $60(Old BV) – $10 (boot received) + $4 [10% * $40 Gain] (Proportional Gain Recognized)
= $54 (60 – 10 + 4)
FAR - 78*
AUD - 66, 79
REG - 73, 76
BEC - 79
- The topic ‘I'm giggling at this explanation about non-monetary exchanges by a user here’ is closed to new replies.