Reporting Requirements for Annual Financial Reports of State Agencies and Universities
Background and Scope
Per 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:
- A government combination
- A transfer of non-monetary assets solely between reporting units within the same reporting entity
- 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.
In general, accounting for non-monetary transactions are 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 clearly evident that 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 the government 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 clearly 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
- Gain or loss cannot be computed
- Exceptions to these rules occur when boot (cash) is involved in the exchange
- Earnings process is not considered complete
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.
If the exchange is not essentially the culmination of an earning process, accounting for an exchange of a non-monetary asset between a government and another entity should 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:
- 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.
- An exchange of 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.
- Government receiving monetary consideration recognizes 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
- Government paying monetary consideration
- Does not recognize gain, but may recognize loss
- Records the asset received at amount of monetary consideration plus the recorded amount of non-monetary asset surrendered
Disclose 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)
- Basis of accounting for the assets exchanged
- Gains or losses recognized on those exchanges
- 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