Non-monetary exchanges refer to business transactions that are completed without any exchange of money between the parties involved.
The difference between monetary assets and non-monetary assets is that monetary assets have a fixed amount in terms of the units of currency.
An example of non-monetary exchange is two organisations exchanging a fixed asset for another fixed asset.
Other examples of non-monetary exchanges are the exchange of plant, machinery, and equipment.
Transactions classified as Non Monetary
The following types of transactions are treated as non-monetary in nature:
- Any form of transfer between a parent company and a subsidiary or between two different subsidiaries
- Stock splits or stock dividends
- Assets of one entity exchanged for an equity interest in another entity
Types of Non-Monetary transactions
The following are the types of non-monetary transactions:
- Non-reciprocal transfers to owners such as stock splits and exchange of non-monetary assets for common stock
- Non-reciprocal transfers with non-owners such as charitable donation of property by an entity and land contribution by state or local governments to a private enterprise for setting up a structure
- Non-monetary exchanges such as inventory exchange for a similar product or any productive asset and exchange of productive assets
Accounting for Non-Monetary exchange
The accounting procedure followed for the non-monetary exchange is based on the fair values of the concerned assets that are transferred between two parties.
The following are some rules that are followed in order to determine the recorded cost of a non-monetary asset acquired in the process of exchange.
- Record a gain or loss on the said exchange at a fair value for the asset transferred in exchange for it.
- At the fair value of the asset received, when the fair value of the asset received is more than the fair value of the asset transferred or exchanged.
- If there are no fair values that can be determined or the transaction itself lacks any commercial value, then the recorded cost is said to be dependent on the recorded amount of the asset that is surrendered.
This completes the concept of non-monetary exchanges. To read about more such interesting concepts on Economics for commerce, stay tuned to BYJU’S.