Assume that a company shares are issued as consideration for equipment acquired. If there is no active market for the shares, the equipment and shares will initially both be recorded at the fair market value of the equipment. An exchange such as this one lacks commercial substance.

Question

Quizplus · Accepted Answer

If there is no active market for the shares, recording the equipment and shares at their fair market value will result in a lack of commercial substance since there is no true exchange of value. This is because the shares cannot be readily converted into cash and therefore do not represent a true investment in the company.

Assume That a Company Shares Are Issued as Consideration for Equipment