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ASC 845, Nonmonetary transactions,is the principal guidance on how to measure an exchange of nonmonetary assets. Certain sections of ASC 845 will be superseded as a result of the adoption of ASU 2014-09, Revenue from contracts with customers ("ASC 606" or "ASU 2014-09") and ASU 2017-05, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets ("ASC 610-20" or "ASU 2017-05"). The amendments made to ASC 845 as a part of these ASUs remove many of the transactions that previously fell within the scope of ASC 845. Further, the issuance of the aforementioned ASUs resulted in the removal of industry-specific revenue guidance for certain specific transactions. ARM Section 1300 does not reflect the accounting changes that will be effective with the new guidance. However, guidance on ASC 606 can be found in our guide,Revenue from contracts with customers, while guidance on ASC 610-20 can be found in our Property, plant, equipment and other assets guide.
The guidance in ASC 606 and ASC 610-20 is applicable for public entities, but all other entities are required to apply the guidance for annual reporting period periods beginning after December 15, 2018.
Other existing authoritative guidance on nonmonetary transactions include:
Nonmonetary Transactions
Airlines - Nonmonetary Transactions
Entertainment - Broadcasters - Nonmonetary Transactions
Entertainment - Films - Nonmonetary Transactions
Software - Nonmonetary Transactions
Transfers of Nonmonetary Assets by Promoters or Shareholders (SAB 48)
Accounting for Expenses or Liabilities Paid by Principal Stockholder(s) (SAB 79)
ASC 845 does not apply to:
1.
A business combination accounted for by an entity under ASC 805 or a combination accounted for by a not-for-profit entity according to ASC 958-805 (see BCG 2)
2.
A transfer of nonmonetary assets solely between entities or persons under common control, such as between a parent company and its subsidiaries or between two subsidiary corporations of the same parent, or between a corporate joint venture and its owners (see BCG 6)
3.
Acquisition of goods or services on issuance of the capital stock of an entity under ASC 718-10 (see SC 2)
4.
Stock issued or received in stock dividends and stock splits that are accounted for in accordance with ASC 505-20 (see FSP 5.11 and FSP 5.12)
5.
A transfer of assets to an entity in exchange for an equity interest in that entity (except for certain exchanges of a nonfinancial asset for a noncontrolling ownership interest discussed in ASC 845-10-15-18)*
6.
A pooling of assets in a joint undertaking intended to find, develop, or produce oil or gas from a particular property or group of properties, as described in ASC 932-360-40-7
7.
The exchange of a part of an operating interest owned for a part of an operating interest owned by another party that is subject to ASC 932-360-55-6
8.
The transfer of a financial asset within the scope of ASC 860-10-15 (see TS 1
9.
Involuntary conversions specified in ASC 605-40-15-2 (see PPE 5.7.3 and PPE 7)**
10.
The transfer of goods or services in a contract with a customer within the scope of ASC 606 on revenue from contracts with customers in exchange for noncash consideration (see ASC 606-10-32-21 through ASC 606-10-32-24)***
11.
The transfer of a nonfinancial asset within the scope of ASC 610-20 in exchange for noncash consideration (see ASC 610-20-32-2 through ASC 610-20-32-3, which require measurement consistent with ASC 606-10-32-21 through ASC 606-10-32-24)***
* This will be superseded in its entirety upon the adoption of ASC 606 and ASC 610-20.
** ASU 2014-09 moved the guidance for involuntary conversions from ASC 605-40 to ASC 610-30 to better reflect the substance of such transactions as other gains and losses, not revenue.
*** These will be outside the scope of ASC 845 upon adoption of ASC 606 and ASC 610-20.
ASC 845 provides measurement guidance for exchanges and nonreciprocal transfers that involve little or no monetary consideration. ASC 845 also provides guidance on the level of monetary consideration in a nonmonetary exchange that causes the transaction to be considered monetary in its entirety and thus outside the scope of ASC 845. An exchange is defined as “a reciprocal transfer between an enterprise and another entity that results in the enterprise’s acquiring assets or services or satisfying liabilities by surrendering other assets or services or incurring other obligations.” A reciprocal transfer of a nonmonetary asset is "an exchange only if the transferor has no substantial continuing involvement in the transferred asset such that the usual risks and rewards of ownership of the asset are transferred.”
Entities should look to ASC 845 to determine how to measure an exchange and would look to other authoritative guidance (e.g., SAB Topic 13.A or ASC 606 and ASC 610-20 once those standards are adopted) to determine the timing of its revenue/gain or expense/loss recognition. It is clear in the definition of an exchange that the standard for gain recognition is the same for nonmonetary transactions as it is for similar transactions involving monetary consideration. The definition should not be used as a basis to defer the timing of recording a nonmonetary exchange. A gross-up of the balance sheet may result in certain cases where an exchange has been completed, but gain/loss recognition is deferred under other authoritative guidance. Entities may also need to look to other authoritative guidance, such as ASC 605-50 or ASC 606 once it is effective, for income statement characterization of non-monetary exchanges that represent incentives offered by an entity to a customer.
In general, accounting for nonmonetary transactions should be based on the fair value of the assets (or services) involved, which is the same basis as that used in monetary transactions. Thus, the nonmonetary asset acquired in exchange for another nonmonetary asset is typically recorded at the fair value of the asset surrendered to obtain it (unless one of the fair value exceptions discussed in ASC 845-10-30-3 is met), and a gain or loss should be recognized on the exchange. The fair value of the asset received should be used if it is more clearly evident than the fair value of the asset surrendered.
The recorded amount of the asset surrendered (i.e., carryover book basis) should be used as the measurement basis for the asset received if any of the following conditions apply (ASC 845-10-30-3):
1.
The fair value of neither the asset(s) received nor the asset(s) surrendered is determinable within reasonable limits.
2.
The transaction is an exchange of a product or property held for sale in the ordinary course of business for a product or property to be sold in the same line of business to facilitate sales to customers other than the parties to the exchange (see ARM 1300.104).
3.
The transaction lacks commercial substance (see ARM 1300.102).
Assessing whether any of the exceptions to fair value measurement apply may require significant judgment.
The model for determining whether fair value or carrying value should be used to measure a nonmonetary transaction is as follows:

Determining the Measurement of a Nonmonetary Transaction

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1– Generally, ASC 820 applies. Specific guidance for interpreting fair value may apply for certain types of items, including broadcasting rights (ASC 920-845) and software (ASC 985-845).
2– In an exchange of real estate addressed by ASC 845-10-25-7, the pro rata recognition of gain may be appropriate even when boot exceeds 25% of fair value of the exchange (See ARM 1300.21).
3– Gain recognition is permitted only for the recipient of boot. The payer of boot has not realized a gain (ASC 845-10-25-6).
Guidance for certain nonmonetary exchanges in which securities representing an ownership interest in another enterprise is received is included in PwC’s Business combinations and noncontrolling interests guide.
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