[hiroyuki]

In FAR textbook (BISK 41st), there is a question in a simulation in Property, Plant & Equipment section about commercial substance as follows;

[Situation]

■During year 3, Mink paid $60,000 and gave a plot of undeveloped land with a carrying amount of $340,000 and a fair value of $480,000 to Klub Co. in exchange for a plot of undeveloped land with a fair value of $520,000. The land was carried on Klub’s books at $360,000. This transaction has commercial substance.

[Question]

Calculate the amount to be recorded for “Land received from Mink on Klub’s books”

[Answer]

$480,000

[My question]

Why is the answer $480,000 not &460,000($520,000 – $60,000) ?

In the explanation section in the text book, it’s written that the transaction is recorded at the fair value of the asset received or the asset given up, whichever is greater (more clearly evident), and a gain or loss is recognized on the exchange in an exchange with commercial substance.

In this case, I $520,000(fair value of the asset given up) is greater than $480,000(fair value of the asset received) from Kolb’s point of view. Therefore, I thought following journal entries can be done in Klub’s books.

Dr.Cash: 60,000

Dr.Land(received) 460,000

Cr.Land(given up) 360,000

Cr.Gain 160,000

Could somebody help me where I am wrong ?

[Anonymous]

There is a disconnect here– Mink paid 60K + land with fair value of 480K (total 540K fair value) for land with fair value of $520K.

>In the explanation section in the text book, it's written that the transaction is recorded at the fair value of the asset received or the asset given up, whichever is greater (more clearly evident)

I'm not sure the rule here, but one of the land's fair values is more clearly evident than the other, which might be what you're not understanding about the answer.

[hiroyuki]

Thank you so much for your quick !!! That's true that received(from Klub's side) asset's (land and cash) fair value is $540,000 in total, and this value is greater than fair value of the asset given up ($520,000). I was considering asset only as single not plural, that's where I made a mistake.

So journal entries can be done in Klub's books as follows. Then, everything is clear for me !!

Dr.Cash: 60,000

Dr.Land(received) 480,000

Cr.Land(given up) 360,000

Cr.Gain 180,000

[Anonymous]

The formula I used for these trans is

Old basics + Boot Paid – Boot Received + Gain Recognize

360+0-60+180=480 Basics of new property.

It works for Both side. Person giving and person receiving

[hiroyuki]

>cpa125

That's nice formula which I have never seen. Thank you for introducing !! I tried to solve some of questions about exchange(with commercial substance) with the formula and it helped me totally.

[Anonymous]

@hiroyuki….Glad I could help :-)….I got this from Becker, while studying for REG…

When are you taking FAR?..

[hiroyuki]

@cpa125

I will take FAR in April. Since it will be first attempt in all exam, I am actually not sure how long I need to study whole FAR. I would appreciate if you would share your experience(if you have taken FAR already) that how long you studied before taking FAR.

[Anonymous]

@hiroyuki…its my first try at FAR. I have taken REG & passed with 1s try using becker. I spend about 1.5 months doing everything. FAR is little longer, so it requires more time

[MCLKT]

@hiroyuki – my first try at FAR I studied for 12 weeks. Averaging 20 hours of study each week. (Single parent working full time).

I was able to cover all material with a good understanding. And I had about a week to do a final review of all material.

My score isn't a good reflection of my study pattern because I ran out of time and didn't complete all of the SIMS.

If I had another 30 min of test time, I know I would have passed.

My tip to you for your first exam. Make sure to leave the last week or so to do plenty of final review so you can circle back to the things you are learning now. Work plenty of practice questions (Sims and MCQ)…. And for the love of God, practice time management and watch the clock on test day!

Good luck to you!

A:[73]97 F:[74]85 R:86 B:[74]82
*NINJA 10 Pt. COMBO & Yaeger*

[Anonymous]

@MCLKT…I recommend you focus on one section at a time. Dont move on to next, until you pass one. I know, it is hard to study while working full time. You should wait for your AUD score this window.

good luck

[MCLKT]

Thanks cpa125 – I do appreciate the recommendation, but there is no way I can sit around for 3 weeks waiting for a score. I'd never be able to get my motivation and discipline back!

FAR is still rather fresh in my mind. I scored the 74 in Nov. I'm juggling FAR and AUD until I get both passes. But I think I have finally found my groove, and I believe I will pass AUD and FAR this window. (knock on wood)

Then I will move on to REG. REG is my biggest fear, because I have no tax experience.

My NTS for REG and BEC expires 7/9 so….. after the attempt this summer using that NTS, I will do just one at a time.

A:[73]97 F:[74]85 R:86 B:[74]82
*NINJA 10 Pt. COMBO & Yaeger*

[hiroyuki]

@cpa125

Thanks for sharing your experience and it's good to know that you are preparing for FAR as well. Hope we can exchange some info continuously.

@MCLKT

Admire you so much that you prepared for FAR exam while working full time and raising child/ren. 20 hours of study each week is my minimum target right now, and thank you for giving me a tip as well. Since accounting itself is very new topic for me(I graduated from Engineering department and was working in IT consulting industry.), I just watched every movies, provided by on-line school, covering 4 topics(FAR, AUD, REG, BEC) and decided to take exam this year(FAR in April, first). Hopefully, I will catch you up.

[Author]

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