FAR Non Monetary Exchange Question

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  • #183019
    john12
    Member

    Ok, so I thought I had it, got 11/13 questions correct the first time through the becker questions, but I still have a few remaining questions, I’m not sure if I confused myself.

    1. For less than 25% Rule, (Boot/Total Consideration). Is total consideration (Boot + FV of Asset Rec’d)? Becker F-2 pg. 39 doesn’t make it very clear since Machine B + Boot Rec’d = $12,000 and FV of Machine A also = $12,000. Not sure if the fact that (FV Given = FV Rec’d) comes into play. I’m trying to break down the formula as much as I can to understand it. In other questions does the FV of the old asset usually = the FV of the new + Boot?

    2. Question 12/13 has me off my rocker. It appears someone else posted this question in another forum and rec’d 2 contradictory answers. If the exchange lacks commercial substance and boot is paid is that end of story? Or if boot is rec’d OR PAID (becker only states rec’d) and over 25% it bumps directly to a monetary exchange and full G/L is recognized? Also, in that question they are saying total consideration = Boot + FV of OLD ASSET, whereas I believed it was supposed to be BOOT + FV OF NEW ASSET.

    I have surely confused the hell out of myself, but want to master this topic since I believe I may see it on my upcoming test. Please help me. Jeff, maybe you have some input??

    Thank you!

    a-pass
    b-pass
    r-pass
    f-pass

Viewing 8 replies - 1 through 8 (of 8 total)
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  • #503484
    jeff
    Keymaster

    To quote Mints: “WHY ARE WE SHOUTING???”

    đŸ™‚

    AUD - 79
    BEC - 80
    FAR - 76
    REG - 92
    Jeff Elliott, CPA (KS)
    NINJA CPA | NINJA CMA | NINJA CPE | Another71
    #503537
    jeff
    Keymaster

    To quote Mints: “WHY ARE WE SHOUTING???”

    đŸ™‚

    AUD - 79
    BEC - 80
    FAR - 76
    REG - 92
    Jeff Elliott, CPA (KS)
    NINJA CPA | NINJA CMA | NINJA CPE | Another71
    #503486
    MintsRGood
    Participant

    @ JEFF, HA!!!!! IT'S A GOOD QUESTION…WHY EXACTLY IS EVERYONE SHOUTING LATELY? đŸ˜‰

    REG: 75 DONE đŸ™‚
    AUD: 61, 71, 68, 92 DONE đŸ™‚
    BEC: 76 DONE đŸ™‚
    FAR: 72, 74, 79 DONE đŸ™‚
    Licensed Michigan CPA đŸ™‚
    -Some people dream of success...others wake up and work hard for it!!!
    -The cowards never start and the weak die along the way!
    -You better work, b***h!
    -Only those who dare to fail greatly can ever achieve greatly.-JFK

    #503539
    MintsRGood
    Participant

    @ JEFF, HA!!!!! IT'S A GOOD QUESTION…WHY EXACTLY IS EVERYONE SHOUTING LATELY? đŸ˜‰

    REG: 75 DONE đŸ™‚
    AUD: 61, 71, 68, 92 DONE đŸ™‚
    BEC: 76 DONE đŸ™‚
    FAR: 72, 74, 79 DONE đŸ™‚
    Licensed Michigan CPA đŸ™‚
    -Some people dream of success...others wake up and work hard for it!!!
    -The cowards never start and the weak die along the way!
    -You better work, b***h!
    -Only those who dare to fail greatly can ever achieve greatly.-JFK

    #503488
    john12
    Member

    lol im shouting bc I AM SO CLOSE TO THE FINISH LINE AND MY HEAD IS ABOUT TO EXPLODEEEE,

    anyways, i think i may be onto something.

    for the under 25% rule, both these amounts will always equal each other:

    fv old = fv new + boot

    therefore, the simplest fool proof formula you can always use is: proportional gain = boot / fair value asset given up.

    I cannot answer my other question though bc i simply do not know: if any boot is paid is it automatically no gain or are there funky rules if boot paid is over 25% of total consideration? if there are weird rules, is there a different way to arrive at total consideration?

    a-pass
    b-pass
    r-pass
    f-pass

    #503541
    john12
    Member

    lol im shouting bc I AM SO CLOSE TO THE FINISH LINE AND MY HEAD IS ABOUT TO EXPLODEEEE,

    anyways, i think i may be onto something.

    for the under 25% rule, both these amounts will always equal each other:

    fv old = fv new + boot

    therefore, the simplest fool proof formula you can always use is: proportional gain = boot / fair value asset given up.

    I cannot answer my other question though bc i simply do not know: if any boot is paid is it automatically no gain or are there funky rules if boot paid is over 25% of total consideration? if there are weird rules, is there a different way to arrive at total consideration?

    a-pass
    b-pass
    r-pass
    f-pass

    #503490
    Anonymous
    Inactive

    John – I was also confused with how Becker explains it and had asked this question in the FAR forum. Anyways, someone explained the reasoning which I have pasted below. Becker states that gain is recorded when boot is received but it seems thats not the case. You have to use the 25% rule and that'll dictate the FV of the asset and the gain recorded. Hope it helps.

    “@Cracked, looking at that problem, gain would be recognized because you ARE using the >25% rule. You're giving $10,000 in cash, and an asset that has a FV of $3,000, which means the $ given is equal to 77% (10,000/13,000) of the total FV given up.

    In that case, it becomes a monetary exchange, and the price of the truck received is equal to the fair value given up, which would be $13,000.”

    #503543
    Anonymous
    Inactive

    John – I was also confused with how Becker explains it and had asked this question in the FAR forum. Anyways, someone explained the reasoning which I have pasted below. Becker states that gain is recorded when boot is received but it seems thats not the case. You have to use the 25% rule and that'll dictate the FV of the asset and the gain recorded. Hope it helps.

    “@Cracked, looking at that problem, gain would be recognized because you ARE using the >25% rule. You're giving $10,000 in cash, and an asset that has a FV of $3,000, which means the $ given is equal to 77% (10,000/13,000) of the total FV given up.

    In that case, it becomes a monetary exchange, and the price of the truck received is equal to the fair value given up, which would be $13,000.”

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