In accordance with the "Basic Standards for Enterprise Accounting," the Ministry of Finance issued the revised Enterprise Accounting Standard No. 7 — Non-monetary Asset Exchange on 2019/5/9, effective as of 2019/6/10.
1. Overview of Guidelines
A non-monetary asset exchange refers to an exchange conducted primarily with non-monetary assets, such as property, plant and equipment, intangible assets, investment properties, and long-term equity investments. Such exchanges do not involve monetary assets or involve only a small amount of monetary assets (i.e., cash paid or received).
Core Concepts
- • Monetary assetsMonetary assets: cash held by an enterprise and the right to receive monetary amounts that are fixed or determinable.
- • Non-monetary assetsAssets other than monetary assets
- • Supplementary Paymentminor monetary assets involved in the exchange
II. Confirmation Principles
Confirm Inbound Assets
Enterprises shall recognize an asset when it meets the definition of an asset and satisfies the recognition criteria.
Derecognize Exchanged Assets
An entity shall derecognize an asset when it meets the criteria for derecognition.
III. Measurement Based on Fair Value
A non-monetary asset exchange shall be measured at fair value if both of the following conditions are met:
Measurement Conditions
- • This exchange has commercial substance
- • The fair value of the asset received or the asset given up can be reliably measured.
Assess commercial substance
A nonmonetary asset exchange has commercial substance if it meets any of the following conditions:
- • The future cash flows of the asset received differ significantly from those of the asset given up in terms of risk, timing, or amount.
- • The present value of the estimated future cash flows generated by using the asset received differs significantly from that of continuing to use the asset given up, and this difference is material relative to the fair values of both assets.
4. Measurement Based on Book Value
Non-monetary asset exchanges that do not meet the fair value measurement conditions shall be measured based on carrying amount.
Billing Rules
- • For an asset exchange, the initial measurement amount is based on the carrying amount of the asset given up plus any related taxes and fees payable.
- • Do not recognize gains or losses upon derecognition of assets exchanged out.
V. Treatment of Price Differences
Pay the balance
Cost of the asset acquired equals the fair value of the asset given up, plus the fair value of any cash paid and any taxes and fees payable.
Received compensation
Cost of the acquired asset = Fair value of the asset surrendered − Fair value of consideration received + Related taxes and fees payable
Regulatory Document Attachment
Accounting Standards for Business Enterprises No. 7 — Exchange of Non-Monetary Assets (PDF)