Property Acquired in an Exchange of Assets - Initial Measurement

The Board previously agreed that an entity would measure an item of PP&E; acquired in exchange for another asset at fair value unless either:

• The exchange transaction lacks commercial substance, or
• The fair values of both the inbound and outbound assets are not reliably measurable.

In these cases, the acquired PP&E; would be measured at the carrying amount of the asset given up in exchange.

The Board discussed how the 'commercial substance' requirement should be applied. The staff proposed two steps:

• Firstly, consider whether the transaction changes future cash flows. These could be the cash flows of the asset, the cash generating unit, or the entity.
• If the cash flows have not changed as a result of the transaction, the entity should determine whether the overall value of the entity has changed as a result of the transaction.

If after these two steps, no change in the future cash flows or on the value of the entity has been noted, then the acquired asset should be measured at the carrying amount of the asset given up in the exchange.

The Board further agreed that the fair value measurement principle would apply to exchanges assets covered by IAS 16 (PP&E;), IAS 38 (intangible assets), and IAS 40 (investment property). The Board noted that the FASB intends to expand the scope of this principle to all non-monetary exchanges. The Board agreed to consider expanding the scope at a later stage.