Dinga Corp. exchanged similar pieces of equipment with Elongo Corp. No cash was exchanged. Since this exchange will not significantly change the economic position of either company, this transaction lacks commercial substance. At this time, the net book value of Dinga's asset is $ 36,000, while the net book value of Elongo's asset on their books is $ 33,300. However, it has been reliably determined that the fair value of Dinga's asset is $ 36,900, while the fair value of Elongo's asset is $ 34,200. Given these facts, at what amount should Dinga record the asset it receives from Elongo?
A) $ 36,900
B) $ 36,000
C) $ 34,200
D) $ 33,300

Question

Quizplus · Accepted Answer

Since the exchange lacks commercial substance and no cash is exchanged, Dinga should record the asset received at the carrying amount (net book value) of the asset given up, which is $36,000. However, because the fair values are provided and no cash is exchanged, the correct approach under accounting standards is to record the new asset at its fair value, which is $34,200 for the asset received from Elongo.