[lab122]

Can someone explain to me what commercial substance is? I understand that future CF part of it, but is there something I should be looking for when I come accross a multiple choice question pertaining to nonmonetary exchanges? Just as a background, this is my third time taking FAR and I’m just trying to really understand the details of any weak areas I have. Thanks!

REG: 55,60,76 Passed
BEC: 71,73,77 Passed
AUD: 59,67,72,72, 90!!! Passed
FAR: 45,52,74,70,79 Passed!!!

I'm done!!!!

[nika_cpa]

The question will always state whether or not the transaction with or without commercial substance. With commercial substance you have to recognize gain and loss. Yes, it is confusing and you need to practice a lot of MCQs for this topic.

Becker self-study, Wiley Test Bank and books, Becker final review. NINJA MCQ bank and NINJA notes for BEC only!

AUD - PASSED!
FAR - PASSED!
REG - PASSED!
BEC - PASSED!

[zipties]

The way I see it is a transaction that is like a “sale” has commercial substance. If it benefits both parties equally then it'll lack commercial substance. In the question, it will usually state that the exchange has or lacks commercial substance. However, sometimes they will refer to the cash flows.

If the future cash flows are expected to be “substantially similar” then the sale lacks commercial substance, so all losses are deferred (unless the item is impaired) and gain is deferred (unless boot is received).

If the future cash flows are expected to be “substantially dissimilar” or “substantially changed” then the transaction has commercial substance and all gains or losses are recognized immediately.

Other indicators that a transaction lacks commercial substance is if the problem says that the exhange is to “facilitate sales to outside customers” or the fair value of the items given up/received cannot be determined within a reasonable limit.

FAR - 89
REG - 80
AUD - 95!!!
BEC - 86
Licensed in Massachusetts (1/2016)

Done with one attempt each thanks to Roger + NINJA 10-Pt Combo

[Rodney Ruxin]

If not explicitly stated whether or not the exchange has commercial substance in the mcq..look at the items being exchanged. If it's similar..e.g. Truck for another Truck.. then the exchange generally lacks commercial substance. If the exchange is for a dissimilar item.. e.g. exchanging a truck for a building.. then the exchange usually has commercial substance.

FAR - 75
AUD - 82
REG - 83
BEC - 79

[Author]

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