Chapter 7: Exchanges

An investment property might be acquired in exchange for another non-monetary asset or asset or for a combination of non-monetary and monetary assets. The cost of such an acquired investment property is measured at the fair value of the consideration given, unless:

• the exchange transaction has no commercial substance; or
• the fair value of the asset received and the asset given up cannot be reliably measured.

This applies even if an entity cannot immediately de-recognise the asset given up. If the acquired item is not measured at fair value, it is measured at the carrying amount of the asset given up.

A transaction has commercial substance if the entity’s future cash flows are expected to change as a result of the transaction. Exchange transactions will have a business purpose, and an exchange of assets that are not identical is likely to result in a change in the entity’s cash flows. If the expected difference in the cash flows is significant, the exchange has commercial substance.

Commercial substances will often be clear without the entity having to perform detailed calculations. If the entity is in the same position as it was before the transaction and no significant change has taken place in its net assets, no gain or loss is recognised on the transaction, and the cost of the new asset is the carrying amount of the asset given up.

The fair value of the asset received might provide evidence of an impairment in the asset given up. The asset given up is written down, and this value is assigned to the new asset.

The fair value of the asset given up is used to measure the cost of the asset received where both the fair value of the asset given up and the fair value of the asset received can be measured with equal reliability. If the fair value of the asset received can be measured more reliably, that value is used.