1、 （APBO 29 also addressed other types of nonmonetary transactions, including nonreciprocal transfers with owners-e.g., dividends in-kind; or other parties-e.g., in-kind charitable contributions. These transactions were not impacted by SFAS 153.） This standard was issued as part of the short-term conv
2、ergence project with the International Accounting Standards Board （IASB）. In fact, FASB largely adopted the revisions previously made to IAS 16, Property, Plant and Equipment.Implementing SFAS 153 requires an understanding of the term commercial substance and how this concept introduces a unique ele
3、ment of subjectivity to the accounting for nonmonetary transactions. Given the lack of implementation guidance in SFAS 153, specific illustrations are provided below and contrasted with prior practice. The authors believe that SFAS 153 not only presents a number of interesting and challenging issues
4、, it also introduces elements of professional judgment that are likely to recur in future standards.Underlying Concepts and Changes in Practice Under APBO 29 （para. 3c）, an exchange was defined as a reciprocal transfer whereby an entity accepts an asset or service （or satisfies a liability） by relin
5、quishing another asset, providing a service, or incurring another obligation. SFAS 153 （para. 2a） amends this definition of exchange by requiring the transferor to relinquish the usual risks and rewards of the asset and have no substantial continuing involvement therein. APBO 29 also focused on the
6、attributes of the assets exchanged （i.e., similar or dissimilar） to determine the basis for measurement and recognition of any associated gain or loss on the transaction. A reciprocal exchange involving similar productive assets was generally recorded using the book value of the transferred asset si
7、milar productive assets are of the same general type, that perform the same function or that are employed in the same line of business （APBO 29, par 3e）.Many accountants asserted, and FASB agreed, that assessing the similarity of assets exchanged could be overly subjective and difficult to apply in
8、practice. This contention existed despite the exhaustive guidance available in EITF Issues 98-3, Determining Whether a Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business, and 01-2, Interpretations of APB Opinion No. 29.For more than 30 years, the fair value exception for
9、similar productive assets was supported by the following reasoning:* The earnings process was not complete when such exchanges transpired.* Revenue should be recognized from the sale of goods and services emanating from the production process, not by the mere substitution of productive assets.* The
10、entity was often in substantially the same economic position after the exchange.* The use of fair values could result in the arbitrary recognition of gains.This exception permitted a number of nonmonetary exchanges to be recorded at book value despite the fact that the transactions may have signific
11、antly changed the economic position of the reporting entity. In SFAS 153, FASB concluded that the recognition and measurement principles applicable to these transactions are better viewed by evaluating changes to the economics of the reporting entity （commercial substance）. This approach was deemed
12、preferable to the subjective evaluation of the of assets and the timing of the earnings process.Scope and Applicability SFAS 153 is applicable to nonmonetary exchanges occurring after June 15, 2005. Certain transactions are specifically excluded from its scope:* business combinations;* nonmonetary e
13、xchanges of assets between entities under common control;* nonmonetary assets （or services） acquired in exchange for the reporting entitys common stock;* stock dividends and splits;* a transfer of assets in exchange for an equity interest in that entity;* transfers of financial assets; and* certain
14、transactions by oil and gas producers.SFAS 153 also amends the scope of SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, to include exchanges of equity-method investments for similar productive assets.During its deliberations over SFAS 153 （par
15、a. A20）, FASB considered amending the scope of SFAS 66, Accounting for Sales of Real Estate, to also include exchanges of real estate. FASB later decided that accounting guidance for reciprocal exchanges of real estate would remain within the scope of APBO 29.A New Focus on Commercial Substance SFAS
16、 153 requires that nonmonetary exchanges be recorded using the book value of the asset relinquished （after a reduction for impairment, if applicable） if one of the following three conditions applies:* The fair value of the asset relinquished or received cannot be determined （within reasonable limits
17、）.* There is an exchange of inventory for inventory that will be sold in the same line of business to facilitate sales to customers.* The transaction lacks commercial substance.The first two conditions are essentially unchanged from APBO 29. The third condition replaces the prior exception for simil
18、ar productive assets.Commercial substance is a new concept in U.S. GAAP and presents unique, subjective challenges for practitioners. Unfortunately, FASB did not specifically define this term. The concept focuses on the business purpose or rationale of the exchange, and requires an examination of ch
19、anges in the entitys economic position as a result of the transaction. Essentially, commercial substance exists if the entitys future cash flows are expected to significantly change as a result of the exchange （para. 2d）. FASB believes that cash flow tests provide objective evidence of the business
20、purpose of the transaction, even though the existence of commercial substance and the underlying assumptions are determined by its management.Commercial substance is deemed to exist if either of the following conditions is present （para 2d）:* The configuration of the future cash flows related to the
21、 asset received is expected to be significantly different from that of the asset transferred. Configuration relates to the risk, timing, and amount of cash flows.entity-specific value of the asset received differs from the entity-specific value of the asset transferred, and this difference is signif
22、icant when compared to the fair values of the assets exchanged.Though the determination of commercial substance suggests the need for detailed calculations, FASB indicates that a qualitative assessment may be all that is required.The term is relatively new to FASB standards, though it was introduced
23、 as part of the conceptual framework in Statement of Financial Accounting Concepts 7, Using Cash Flow Information and Present Value in Accounting Measurements. Essentially, it represents the present value of the entitys expected future cash flows from the use and disposition of the asset. Entity-spe
24、cific value differs from fair value, because it reflects the entitys expectations as to the amounts, timing, and uncertainty of cash flows versus those assumed by others in the marketplace.The factors that management should consider when determining an assets entity-specific value have been broadly
25、interpreted. These include the manner in which the asset is integrated with the entitys operations as well as the synergies expected as a result of the exchange. The minutes of FASBs April 22, 2003, meeting indicate that changes in entity-specific value can be assessed with and without the inbound a
26、sset.Illustrations: SFAS 153 Versus Prior Practice Many respondents to the exposure draft of SFAS 153 requested that FASB provide illustrations or implementation guidance, particularly with respect to the new commercial substance provisions. It declined, however, to provide such guidance （para. A12）
27、 because it believes that the additional guidance related to commercial substance sufficiently clarifies the meaning of that term. FASB was also concerned that such examples might be viewed as bright lines by accountants.The authors informal discussions with practitioners and accounting educators su
28、ggest the need for added clarity concerning the new concepts and the subjectivity introduced in SFAS 153. Accordingly, Exhibits 1 （Trade-in of Equipment）, 2 （Exchange of Equipment）, and 3 （Exchange of Real Property） highlight key provisions in SFAS 153 and contrast them with prior practice.Remember
29、that gains and losses on exchanges of similar productive assets are still deferred for tax purposes under IRC section 1031 （a）. Accordingly, temporary differences and deferred tax consequences will arise if commercial substance exists.What about boot? In general, SFAS 153 retains the measurement and recognition concepts in APBO 29 in cases where
