A company purchased Land A at Rs. 10 lakhs in 2017 and accounted at that cost.
In 2018, that land was exchanged with another land B.
Fair Market value of Land A - Rs. 8 lakh
Fair Market value of Land B - Rs. 6 lakh.
How this land exchange should be accounted in Books and at what cost??
Whether the balance of Rs.2 lakh (difference in FMV) received by company?
What is business of the company? whether it was investment or stock in trade?
As per available data....... Being barter exchange ....
According to AS 18, the barter exchange is to be considered at FMV
You can open a bank account (say, Barter Bank) which gets nullified at the end of the exchange.
1. For sale of land A.
a. To land A Cr. Rs. 800,00,/- .... By Barter Bank Dr. Rs. 800,000/-
b. To land A Cr. Rs. 200,000/- By Short Term CG Dr. Rs. 200,000/-
2. For Purchase of Land B.
a. By Land B Dr. Rs. 600,000/- To Barter Bank Cr. Rs. 600,000/-
b. By Amount Receivable/ seller of land B Dr. Rs. 200,000/-
To Barter Bank Cr. Rs. 200,000/-
As per AS -10 inc case of exchange of Assets, Acquired Asset is measured at FMV. There is no other flow of funds.
Is the following Entry correct:
Debit: Land B Rs. 6,00,000/-
Debit: Loss on exchange of Assets Rs. 4,00,000/-
Credit: Land A Rs. 10,00,000/-
A. Do you think land is depreciable asset?
B. Here FMV of land is 8 lakhs, but accounted for 6 lakhs!!
| Originally posted by : Dhirajlal Rambhia | ||
 |
A. Do you think land is depreciable asset? B. Here FMV of land is 8 lakhs, but accounted for 6 lakhs!! |
 |
A. Land is not depreciated.
B. As per Para 26 of AS 10:-
One or more items of property, plant and equipment may be acquired in exchange for a non-monetary asset or assets, or a combination of monetary and non-monetary assets. The following discussion refers simply to an exchange of one non-monetary asset for another, but it also applies to all exchanges described in the preceding sentence. The cost of such an item of property, plant and equipment is measured at fair value unless (a) the exchange transaction lacks commercial substance or (b) the fair value of neither the asset(s) received nor the asset(s) given up is reliably measurable. The acquired item(s) is/are measured in this manner even if an enterprise cannot immediately derecognise the asset given up. If the acquired item(s) is/are not measured at fair value, its/their cost is measured at the carrying amount of the asset(s) given up.
As per Para 28 of AS 10:-
The fair value of an asset is reliably measurable if (a) the variability in the range of reasonable fair value measurements is not significant for that asset or (b) the probabilities of the various estimates within the range can be reasonably assessed and used when measuring fair value. If an enterprise is able to measure reliably the fair value of either the asset received or the asset given up, then the fair value of the asset given up is used to measure the cost of the asset received unless the fair value of the asset received is more clearly evident.
As per above Para, Land B (Acquired Asset) is accounted at Rs. 6,00,000/- (which FMV of acquired asset -Land B)
My point is for land A whose FMV is 8 lakhs, but accounted for 6 lakhs (under barter exchange), which is not correct.
CAclubindia
