A transaction was reported as a nonmonetary exchange of assets. Under which of the following circumstances should the exchange be measured based on the reported amount of the nonmonetary asset surrendered?
a. When the transaction lacks commercial substance.
b. When the entity's future cash flows are expected to change as a result of the exchange.
c. When the timing of future cash flows of the asset received differs significantly from the configuration of the future cash flows of the asset transferred.
d. When the transaction has commercial substance.
Answer:A
Choice "a" is correct. When a transaction involving a nonmonetary exchange lacks commercial substance, the reported amount of the nonmonetary asset surrendered is used to record the newly acquired asset. If the transaction has commercial substance, the fair value approach is used.
Choice "b" is incorrect. When the entity's future cash flows are expected to change as a result of the exchange of nonmonetary assets, this exchange is referred to as having commercial substance. In this situation, the fair value method approach is used.
Choice "c" is incorrect. The timing of future cash flows of the asset received differing significantly from the configuration of the future cash flows of the asset transferred is evidence of an exchange with commercial substance in which the fair value approach would be used.
Choice "d" is incorrect. The fair value of the assets surrendered or received is used for reporting when the exchange has commercial substance.