In: Accounting
On January 1, Year 1, Melvin Corporation promises to Unconditionally transfer a building that cost $100,000(appraised recently at$ 300,000)to the Vivian Comp on Jan 1, Year 2 for a boat she bought for $250,000. As of 12/31 Year 2, Melvin still has not transferred title to the building although it received title to the boat. How should Vivian and Melvin record these transactions? Briefy restate the facts of the case. Identify the issue. State the issue in the form of a research question. Give a short answer to the issue. Cite the ASC authority for your answer. Explain the authority and apply it to the facts to discuss your reasoning to arrive at the answer.
Facts of the case:
On January 1, Year 1, Melvin Corporation promises to unconditionally transfer a building that cost $100,000 (appraised recently at$ 300,000) to the Vivian Comp on Jan 1, Year 2 for a boat she bought for $250,000.
As of 12/31 Year 2, Melvin still has not transferred title to the building although it received title to the boat.
Questions:
Answers:
A: Refer below for answer to question number (2):
Time line |
Facts |
At the beginning of the Year 1 |
Melvin Corporation promised to Vivian Comp at the beginning of Year 2 following transaction: Melvin will transfer a building costing $100,000 (recent fair valued at $ 300,000) for a boat bought by Vivian Comp for $250,000. |
At the end of Year 2 |
Melvin Corporation has a title to Boat however Melvin Corporation has not transferred title of Building as a consideration to Vivian Comp which was promised. |
B: Refer below for answer to question number (3):
Issues to be resolved in this question are basically as follows:
C: Refer below for answer to question numbers (1), (4) and (5)
ASC- 845 states that an exchange with another entity (reciprocal transfer) that involves principally non-monetary assets or liabilities.
In order to record transaction, following alternatives are available to determine the recorded cost of a nonmonetary asset acquired in an exchange:
Sr. No. |
Alternatives |
Value to be considered for non-monetary asset |
1 |
Preferential Alternative |
Fair value of the asset transferred and record a gain or loss on the exchange |
2 |
If the fair value of asset received is more evident than the fair value of the asset transferred |
Fair value of the asset received |
3 |
If no fair values are determinable or no commercial substance in transaction |
At the recorded amount of the asset transferred |
Alternatives 1:
Fair Value of Asset transferred:
Building $ 300,000
Boat $ 250,000
Alternative 1 |
Melvin Corporation |
Vivian Comp |
Fair value of the asset transferred and record a gain or loss on the exchange |
Boat $ 250,000 Loss on exchange $ 50,000 |
Recoverable from Melvin Corporation in Kind $ 300,000 (Refer Note 1 below) Gain on exchange $ 50,000 |
Alternatives 2:
Fair Value of Asset received:
Building $ 300,000 (recently appraised)
Boat $ 250,000 (Bought in Cash)
Value of Boat i.e. $ 250,000 is determined as monetary transaction hence considered to be more evident.
Alternative 2 |
Melvin Corporation |
Vivian Comp |
Fair Value of Asset received |
Boat $ 250,000 Loss on exchange $ 50,000 |
Recoverable from Melvin Corporation in Kind $ 250,000 (Refer Note 1 below) Gain/ Loss on exchange $ NIL |
Alternative 3: If no fair values are determinable or no commercial substance in transaction. This alternative is not applicable since fair values of both assets are available and transaction has commercial substance.
Note 1: As of 12/31 Year 2, since Melvin received title to the boat and Vivian Comp has not received title to the building, Melvin Corporation has stated Boat as asset in their Financial Statements on the other hand Vivian Comp stated an consideration receivable in kind from Melvin Corporation in its books since it does not have title of Building in its name.