Non-Monetary Exchanges

Non-Monetary exchanges refer to those business transactions, which are completed without the need for any exchange of money between the two parties involved in the exchange.

The difference between monetary assets and non-monetary assets is that monetary assets have a fixed amount in terms of the units of the currency.

The non monetary exchange example can be two organisations exchanging a fixed asset for another fixed asset between them.

The other examples of non-monetary exchanges can be exchange of plant, machinery and equipment.

Transactions classified as Non Monetary

The following types of transactions are treated as non-monetary in nature, and are as follows:

  1. Any form of transfer between a parent company and subsidiary or between two different subsidiaries.
  2. Stock splits or stock dividends.
  3. Assets of the one entity exchanged for equity interest in the other entity.

Types of Non-Monetary transactions

The following are the types of non-monetary transactions.

  1. Non-reciprocal transfer to owners such as stock split, exchange of non-monetary assets for common stock.
  2. Non-reciprocal transfers with nonowners such as charitable donation of property by an entity, land contribution by state or local governments to a private enterprise for the purpose of setting up a structure.
  3. Non-monetary exchanges such as inventory exchange for a similar product or any productive asset. Or 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 which are followed in order to determine the recorded cost of a non-monetary asset that is acquired in the process of exchange

  1. Record a gain or loss on the said exchange at a fair value for the asset transferred in exchange for it.
  2. At the fair value of the asset received, if on the condition that the fair value of the asset is more than the fair value of asset transferred in exchange for it.
  3. 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.

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