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ASC 845-10-25-6 states that the transaction should be considered monetary if the amount of boot (monetary consideration) is 25% or more of the fair value of the exchange. If the boot is less than 25% and the transaction would otherwise be recorded at carryover book basis, the pro-rata gain recognition guidance in ASC 845-10-30-6 should be applied. In that situation, boot received in an exchange transaction is considered to represent sale proceeds for a portion of the asset given up. The recorded cost is prorated to the partial sale on the basis of the ratio of the boot received to the total consideration (the estimated fair value of the nonmonetary asset received plus the boot received). The fair value of the nonmonetary asset given up may be used instead as the denominator if it is more clearly evident. The realized gain on the exchange represents the amount by which the boot received exceeds the proportionate share of the recorded cost of the asset given up. The application of ASC 845-10-30-6 is illustrated at ARM 1300.4.
If the terms of a nonmonetary transaction (involving boot) otherwise recorded at carryover basis indicate a loss on the asset exchanged, the entire indicated loss should be recognized in the current period.
In a carryover basis transaction with insignificant boot (i.e., less than 25% of the fair value of the exchange), the entity paying the monetary consideration should not recognize any gain. The cost ascribed to the asset received should be determined by adding the "boot" paid to the cost of the nonmonetary asset given up in the exchange (as illustrated at ARM 1300.4).
Real estate
For exchanges of real estate that lack commercial substance and with less than 25% boot, when the criteria of ASC 360-20-40-5 are not met, strict interpretation of ASC 845-10-30-4 through ASC 845-10-30-6 would allow pro-rata gain recognition by the recipient of boot, without reference to the requirements of ASC 360-20. Based on the basis for conclusions in FAS 153, paragraph A20, we believe that ASC 360-20 was intended to provide guidance for monetary, rather than nonmonetary, transactions. However, we generally believe that the criteria in ASC 360-20-40-5, concerning consummation of a sale and seller's continuing involvement, should be met in order to have gain recognition on such exchanges. This position is consistent with the guidance in ASC 845-10-15 as it relates to exchanges of real estate with 25% or more boot.
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