No gain or loss is recorded for exchanges of plant assets without commercial substance.

Question

Quizplus · Accepted Answer

When plant assets are exchanged without commercial substance, no gain or loss is recognized under the generally accepted accounting principles (GAAP) in the United States. This is because the exchange does not result in a significant change in the company's future cash flows. However, if there is commercial substance to the exchange, then any gain or loss from the transaction must be recognized. Commercial substance refers to a significant change in the asset's utility or cash flows as a result of the exchange.

No Gain or Loss Is Recorded for Exchanges of Plant