GAAP treatment - Barter Transaction vs. Exchange of Long-lived Assets

Per CFA Schweser Notes Book of Financial Statement Analysis, there are -

  1. (Reading #30, long-lived assets) If a long-lived asset is exchanged for another asset, again or loss is computed by comparing the carrying value of the old asset with fair value of the old asset (or the fair value of the new asset if that value is clearly more evident). It seems that there is no difference between US GAAP and IFRS treatments.

  2. (Reading # 25, I/S, barter transactions) A barter transaction is defined as two parties exchange goods or services without cash payment. There is difference between GAAP and IFRS treatments -

  • Under US GAAP, revenue from barter transaction can only be recognized if its fair value can be estimated from historical data on similar non-barter transaction. Otherwise , the revenue is recorded at the carrying value of the asset surrendered.

  • Under IFRS, revenue from barter transactions must be based on the fair value of revenue from similar nonbarter transactions with unrelated parties.

So I am confused… and have two questions -

  1. My impression is that exchange of long-lived assets sounds like a type of barter transaction, although you may argue that barter transaction is part of the company operation business. Can anyone please tell me why the GAAP treatments for these two transactions are different?

  2. In the exam, let’s say if the question is about GAAP treatment on exchange of PPE, how can we determine when the “exchange of long-lived assets" rule applies and when the “barter transaction” rule applies?

Reading #25 refers to revenues : barter transactions which are part of a business’ normal operations; Reading #30 refers to _ gains _ and _ losses _: transactions which are not part of a business’ normal operations.

They will make it clear whether the transactions are part of the business’ normal operations or not.

so the key factor is whether the transactions are part of the business’ normal operations.

Thanks a lot for the clarification!

Yes, that’s it.

My pleasure.