Reporting Requirements for Annual Financial Reports of State Agencies and Universities

Capital Assets

Non-Monetary Transactions

Background and Scope

According to GASB 62, non-monetary transactions involve an exchange of principally non-monetary assets and liabilities with another entity (reciprocal transfer).

Non-monetary transactions do not apply to:

• Agency combinations
• A transfer of non-monetary assets solely between agencies.
• Non-exchange transactions

Some exchanges of non-monetary assets involve a small monetary consideration (referred to as “boot”), even though the exchange is essentially non-monetary.

Basic Principle

In general, the accounting for non-monetary transactions is based on the fair value of the assets (or service) involved, which is the same basis as that used in monetary transactions. Therefore, the cost of a non-monetary asset acquired in exchange for another non-monetary asset is the fair value of the asset surrendered to obtain it. Gain or loss are recognized on the exchange.

The fair value of the asset received is used to measure the cost if it is more evident than the fair value of the asset surrendered.

If neither the fair value of a non-monetary asset transferred nor the fair value of a non-monetary asset received in exchange is determinable within reasonable limits, the recorded amount of non-monetary asset transferred from agencies may be the only available measure of the transaction.

Gain or loss on a non-monetary transaction is computed as:

Fair value of the asset given (FV) – Book value of the asset given (BV) = Gain (loss)

The following rules apply in recording non-monetary exchanges:

• Losses are always recognized (conservatism)
• The asset given up is always removed from the books at book value.
• Gains are recognized when dissimilar assets are exchanged (for example, a machine for a truck).
• Gains are not recognized when similar assets are exchanged (for example, a machine for a machine) because the earnings process is not considered complete.
• The asset received is recorded at the fair value of the asset given up (or the fair value of the asset received if “more evident”) whenever gains and losses are recognized.
• The asset received is recorded at the book value of the asset given up when gains and losses are not recognized. Gains and losses are not recognized when:
  • Earnings process is not considered complete.
    –AND–
  • Gain or loss cannot be computed.
  • Exceptions to these rules occur when boot (cash) is involved in the exchange.

Modification of Basic Principle

Fair Value Not Determinable

Accounting for a non-monetary transaction is not based on the fair values of the assets exchanged unless those fair values are determinable within reasonable limits.

Exchanges

If the exchange is not essentially the culmination of an earning process, accounting for an exchange of a non-monetary asset between an agency and another entity must be based on the recorded amount of the non-monetary asset relinquished. The following two types of non-monetary exchange transactions do not culminate in an earning process for an exchange of a:

• Product or property held for sale in the ordinary course of operations for a product or property to be sold in the same function to facilitate sales to customers other than the parties to the exchange.
• Productive asset not held for sale in the ordinary course of operations for a similar productive asset or an equivalent interest in the same or similar productive asset.

The exchange of non-monetary assets, that otherwise would be based on recorded amount, may involve monetary consideration.

• The agency receiving monetary consideration recognizes a gain to the extent that the monetary receipt exceeds a proportionate share of the recorded amount of the asset surrendered.

  Gain recognized = [Boot/(Boot + Fair value of non-monetary asset received)] x Total gain

  Fair value of non-monetary asset received(assumed) = Fair value of non-monetary asset given – boot received

• The agency paying monetary consideration
  • Does not recognize a gain but may recognize a loss
  • Records the asset received at amount of monetary consideration plus the recorded amount of non-monetary asset surrendered

Disclosure

GASB 99 clarifies that the notes to financial statements must provide information about the measurable attributes of the asset transferred in a nonmonetary transaction. The following are the four measurement attributes that are used in financial statements (GASB Concepts Statement No. 6, Measurement of Elements of Financial Statements):

• Historical cost — the price paid to acquire an asset or the amount received when a liability is incurred in an actual exchange transaction.
• Fair value — the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is an exit price.
• Replacement cost — the price that would be paid to acquire an asset with the same service potential in an orderly transaction between market participants at the measurement date.
• Settlement amount — the amount at which an asset could be realized or a liability could be liquidated other than in an active market. It can be either the amount that:
  • A party would accept to settle the liability or would pay to satisfy a receivable at the measurement date
  • Will be realized from an asset or will be needed to liquidate the liability in due course according to the terms of an arrangement

Disclose all of the following information for non-monetary transactions that occurred during the fiscal year in the Other Text box of the CANSS web application:

• Nature of the non-monetary transactions (include a breakdown by capital asset type)
• Measurement attributes applied to the assets transferred
• Gains or losses recognized on those exchanges

Examples

• Fair value is not determinable — since FV is unknown, no gain or loss can be computed and the asset received is recorded at the BV of the asset given up.
• Loss, no boot involved — the loss (FV - BV) is recognized immediately.
• Loss, boot given:
  • Boot given is added to the value of the asset given
  • If the FV of asset given is unknown, then assume that the FV given = FV received – boot given
• Loss, boot received:
  • Boot received is deducted from the value of the asset given
  • If the FV of asset given is unknown, then assume that the FV given = FV received + boot received
• Gain, dissimilar assets — the entire gain is recognized when assets are dissimilar.
• Gain, similar assets, no boot involved:
  • Gain is not recognized
  • The asset received is debited at the BV of the asset given
• Gain, similar assets, boot given — gain is not recognized.
• Gain, similar assets, boot received:
  • An exception to non-recognition of gain on exchange of similar assets arises when boot is received in the exchange.
  • Gain recognized is computed as:

    Boot Gain recognized = [Boot/(Boot + Fair value of non-monetary asset received)] x Total gain