Nonmonetary Exchanges – New Standard – (2 of 2)

As discussed in our earlier post, the FASB issued a new standard for nonmonetary asset exchanges. One of the most common nonmonetary exchanges is purchasing a new vehicle with a trade in. The nonmonetary asset that is exchanged is the old vehicle. This new standard requires calculating the gain/loss differently.

For example, if your trade a vehicle which initially cost you $20,000 and you have recognized $16,000 of book depreciation, for a vehicle with a sticker price of $30,000 with a $9,000 trade-in allowance. You would calculate the gain on the relinquished asset as follows:

Initial cost of vehicle $20,000 less accumulated depreciation(16,000) = Net book value of $4,000 less trade in allowance of (9,000) = gain on exchange of $ 5,000.

The transaction would be recorded as follows:

Debit New vehicle $30,000
Debit Accumulated depreciation. 16,000
Credit Gain on new vehicle $ 5,000
Credit Old vehicle 20,000
Credit Cash (paid for vehicle) 21,000

If the church financed the vehicle with a new note, instead of crediting cash you would credit notes payable for $21,000.