| This summary of recently issued Accounting Standards Board (AcSB) pronouncements
has been prepared for information purposes only. Reference should be made to official Handbook material for
the text of final AcSB pronouncements. |
Status: New Section 3831 issued. Web-based presentation
posted.
The AcSB has issued new Section 3831, Non-Monetary
Transactions, replacing Section 3830 of the same name. It requires all non-monetary
transactions to be measured at fair value unless:
- the transaction lacks commercial substance;
- the transaction is an exchange of a product or property held for sale in the ordinary course of business
for a product or property to be sold in the same line of business to facilitate sales to customers other than
the parties to the exchange;
- neither the fair value of the assets or received nor the fair value of the assets or given up is reliably
measurable; or
- the transaction is a non-monetary, non-reciprocal transfer to owners that represents a spin-off or other
form of restructuring or liquidation.
The new requirements, which are substantially the same as in the March 2004 Exposure
Draft, apply to non-monetary transactions initiated in periods beginning on or after January 1, 2006.
Earlier adoption is permitted as of the beginning of a period beginning on or after July 1, 2005.
Retroactive application is not permitted.
|
Commercial substance replaces culmination of the earnings process as the test for fair
value measurement. A transaction has commercial substance if it causes an identifiable and measurable
change in the economic circumstances of the entity. Commercial substance is a function of the cash
flows expected by the reporting entity. It resolves many of the interpretative difficulties experienced
with the existing standard.
In response to comments received on the March 2004 Exposure Draft, clarifications have
been made to the two commercial substance tests and examples are provided to illustrate application of the
tests. The distinction between entity-specific value and fair value has also been clarified.
As proposed in the Exposure Draft, the definition of a non-monetary exchange in new Section 3831 has
no threshold for cash consideration (“boot”). AcSB members agreed that, as the percentage of boot
increases, the existence of commercial substance becomes increasingly obvious. Members were concerned
that the retention of a threshold for boot might be incorrectly interpreted as the threshold for commercial
substance, resulting in inappropriate accounting treatment for some transactions. Examples include an
illustration of the determination of commercial substance when a transaction includes boot.
The scope of new Section 3831 has been modified to require that related party non-monetary transactions,
other than non-monetary, non-reciprocal transfers to non-controlling owners, be accounted for in accordance
with Section 3840, Related Party Transactions. The new Section also
clarifies that not-for-profit organizations apply Sections 4410, Contributions —
Revenue Recognition, and 4430, Capital Assets Held by Not-for-Profit
Organizations, to account for contributions received.
New Section 3831 converges with recently changed International Accounting Standards Board (IASB) standards
and US GAAP.
A Background Information and Basis for
Conclusions document is available to explain the rationale for the changes proposed in the March 2004
Exposure Draft. This will be updated during the fourth
quarter of 2005.
Staff support: Kate Ward,
CA
Phone no.: +1 (416) 204-3437
|
