An exchange of plant assets has commercial substance if the future cash flows change as a result of the transaction.

Question

Quizplus · Accepted Answer

When an exchange of plant assets has commercial substance, it means that the cash flows of the company will be affected by the transaction. The change could come from the difference in the fair value of the assets being exchanged, or from the expected changes in the future productivity, efficiency, or usage of the assets. If there is no significant change in the future cash flows, then the exchange does not have commercial substance, and the company should record the transaction based on the book values of the assets.

An Exchange of Plant Assets Has Commercial Substance If the Future