What is an Asset Swap?

Non-monetary asset exchange refers to the exchange of non-monetary assets such as inventories, fixed assets, intangible assets, and long-term equity investments by the two parties to the transaction. The exchange generally does not involve monetary assets, or only involves a small amount of monetary assets. . Its characteristics are as follows: 1. The transaction object of non-monetary asset exchange is mainly non-monetary assets; 2. Non-monetary asset exchange is the act of exchanging non-monetary assets; 3. Non-monetary asset exchange generally does not involve monetary Assets, but sometimes small amounts of monetary assets may also be involved. ^[1]

Non-monetary asset exchange

The non-monetary asset exchange stated in the non-monetary asset exchange guidelines is a reciprocal transfer between enterprises, mainly in the form of non-monetary assets. Cost, not unidirectional non

Monetary

In the case of non-monetary asset exchange, whether it is one asset into one asset, one asset into multiple assets, multiple assets into one asset, or multiple assets into multiple assets, non- Monetary asset exchange guidelines provide for a defined swap

Non-monetary asset exchange means that the two parties

I. Confirmation of accounting measures for accounting treatment under the new standard

When the new standard meets two conditions for non-monetary asset exchange at the same time, it is measured at fair value and recognized as profit or loss. The first is that the exchange has commercial substance; the second is that the fair value of the assets transferred in or out can be measured reliably. If it does not meet the requirements, it shall be measured at the book value of the assets to be exchanged and no profit or loss shall be recognized.

Measured at fair value

1. If the accounting treatment not involving the premium is priced at fair value, the fair value of the swapped out assets plus relevant taxes and fees payable shall be taken as the booked value of the swapped in assets, and the difference between the fair value of the swapped out assets and their book value Into the current profit and loss. The formula is: the booked value of the asset being swapped in = the fair value of the asset being swapped out + related taxes and fees payable.

2. If the accounting treatment involving the premium is priced at the fair value, the party paying the premium shall exchange the fair value of the asset, plus the premium and the relevant taxes and fees payable, as the recorded value of the asset to be exchanged, The difference between the fair value and its book value is included in the current profit and loss. The formula is: the booked value of the asset being swapped in = the fair value of the asset being swapped out + the premium + related taxes and fees payable. The party receiving the premium shall use the fair value of the asset to be exchanged, minus the premium and relevant taxes and fees payable, as the booked value of the asset to be exchanged, and the difference between the fair value of the asset to be exchanged and its book value shall be included in the current profit and loss. The formula is: the booked value of the asset being exchanged = the fair value of the asset being exchanged-the premium + the relevant taxes and fees payable.

Accounting treatment at fair value:

1. If the exchange of non-monetary assets meets the following two conditions at the same time, the fair value and the relevant taxes and fees payable shall be used as the cost of the asset being replaced, and the difference between the fair value and the book value of the asset being exchanged shall be calculated as the current profit and loss:

(1) The exchange is of commercial substance; (2) The fair value of the assets transferred in or out can be reliably measured.

2. In the case of fair value measurement, regardless of whether the premium is involved, as long as the fair value of the asset being exchanged is not the same as its book value, it will certainly involve the recognition of profit or loss. The type of asset varies.

3. In the event of a premium, the party paying the premium and the party receiving the premium shall deal with the situation separately:

(1) The party paying the premium: The fair value of the asset to be exchanged plus the premium paid (or the fair value of the asset to be exchanged) and related taxes and fees payable shall be taken as the cost of the asset; The difference between the book value of the asset being exchanged, the premium paid, and the sum of the relevant taxes and fees payable shall be included in the current profit and loss.

(2) The party receiving the premium: the fair value of the asset being replaced (or the fair value of the asset being subtracted from the premium) and the relevant taxes and fees payable as the cost of the asset; the cost of the asset is added The difference between the sum of the premiums received and the sum of the book value of the assets to be exchanged plus the relevant taxes and fees payable shall be included in the current profit and loss.

Third, measured by book value

1. Accounting treatment that does not involve the replenishment If the book value is used as the book value, the book value of the swapped out asset plus the relevant taxes and fees payable shall be used as the booked value of the swapped asset, and no profit or loss will be involved. The formula is: the cost of the asset swapped in = the book value of the asset swapped out + related taxes and fees payable.

2. If the accounting treatment involving the premium is calculated based on the book value, the party paying the premium shall exchange the book value of the asset, plus the premium and the relevant taxes and fees payable as the book value of the asset to be exchanged. profit and loss. The formula is: the cost of the asset swapped in = the book value of the asset swapped out + the premium paid + related taxes and fees; the party receiving the premium will exchange the book value of the asset, minus the premium and related taxes and fees payable As the booked value of the assets exchanged, the current profit and loss is not calculated. The formula is: the cost of the asset being exchanged = the book value of the asset being exchanged-the premium + the relevant taxes that should be paid.

Accounting treatment based on book value:

1. If the exchange of non-monetary assets does not have commercial substance, or although the fair value of the assets that are exchanged in and out cannot be reliably measured, the book value of the assets that are exchanged out and the relevant taxes and fees payable shall be taken as the Cost of assets transferred in; no profit or loss is recognised regardless of whether the premium is paid.

2. In the event of a premium, the party paying the premium and the party receiving the premium shall deal with the situation separately:

(1) Paying premium: The book value of the asset being swapped out, plus the premium paid and related taxes payable, shall be taken as the cost of the asset being swapped; no profit or loss shall be recognized.

(2) The party receiving the premium: The book value of the asset to be exchanged, minus the premium received, plus relevant taxes and fees payable, shall be used as the cost of the asset; no profit or loss shall be recognized.

3. For non-monetary asset exchanges, where multiple assets are replaced at the same time, when determining the cost of each asset exchanged, it shall be handled as follows:

(1) If the exchange of non-monetary assets is of commercial substance and the fair value of the assets transferred can be reliably measured, the cost of the assets transferred shall be calculated in accordance with the proportion of the fair value of each asset in the total fair value of the assets transferred. The total amount is divided and determined to determine the cost of each asset transferred.

(2) If the exchange of non-monetary assets does not have commercial substance, or if the fair value of the assets transferred cannot be reliably measured, it shall be calculated based on the original book value of the assets transferred to the total book value of the assets transferred. Proportion to allocate the total cost of assets transferred in to determine the cost of each asset transferred.

Non-monetary asset exchange	Valuation of swap-in assets	Whether to confirm the profit or loss of the transfer of assets
Commercial substance, reliable measurement of fair value	Fair value	Yes
No commercial substance	Book value of assets swapped out	no
Unreliable measurement of fair value	Book value of assets swapped out	no

The exchange of non-monetary assets has commercial substance, and

According to the non-monetary asset exchange standards, those that meet one of the following conditions are deemed to have commercial substance:

Overview

Accounting Standards for Business Enterprises No. 7-Non-Monetary Asset Exchange (2006)

From 1999 to the promulgation of the new code in 2006, it has gone through three stages.

1 The Ministry of Finance issued guidelines for trading non-monetary assets in 1999

The term non-monetary asset transaction is used here instead of non-monetary asset exchange . It was not corrected to exchange until the new standard was promulgated in 2006, because Chinese accounting standards are prepared with reference to standards such as IAS Then, according to the "Enterprise Accounting Standards" with Chinese characteristics actually formulated by China, when the United States regulated non-monetary transactions, it was changed to "exchange", and China immediately responded and changed transactions into exchanges.

Non-monetary assets during this period are divided into assets for sale and assets for sale. The exchange between assets for sale and assets for sale, non-sale assets and non-sale assets is referred to as similar non-monetary asset transactions. For similar transactions, the book value measurement is adopted, and no profit or loss is recognized; otherwise, it is called Transactions of different types of non-monetary assets are measured at fair value, and profit or loss is recognized.

The Ministry of Finance revised the guidelines for non-monetary asset transactions in 2001

The Ministry of Finance believes that the 1999 standard more often introduced the concept of fair value and required accounting treatment in accordance with the requirements of the standard, but this was not compatible with the economic environment where the market for factors of production such as the stock market was very imperfect at the time and fair value was difficult to obtain. As a result, the profits generated by some enterprises through non-monetary asset transactions lacked authenticity and reliability, so the fair value was cancelled and all were measured at their book values.

Three new accounting standards issued by the Ministry of Finance in 2006

In the new accounting standards, it is stipulated that, if it has commercial substance, it shall be measured at fair value, and at the same time, profit and loss shall be recognized; if it has no commercial substance, it shall be measured at its book value, and no profit or loss shall be recognized. This is the result of the pressure and motivation of the internationalization of accounting standards.