Like-kind exchanges

A like-kind exchange is a disposal that is exchanged for a similar asset.

Note: See FASB standards APB29 Accounting for Nonmonetary Transactions, and EITF86-29 Nonmonetary Transactions: Magnitude of Boot and the Exceptions to the Use of Fair Value for additional information about GAAP requirements.

Under certain circumstances, you are required to defer a portion of the gain on a disposal that is being exchanged for a similar asset. If the exchange results in a gain that is less than 25 percent, then you must proportionally recognize the gain and coordinate the disposal of the original asset and the addition of the new asset. If the exchange results in a loss or if the gain from the exchange is greater than 25 percent, then follow the standard disposal procedure for the disposed asset and the standard addition procedure for the new asset. Consult your accounting advisor before you decide on a processing method for like-kind exchanges.

Before you dispose of an exchanged asset, you must gather these data:

The total gain or loss that is incurred as a result of the exchange
The numbers to use for both the old asset disposal and the new asset addition.

For the old asset disposal, you must know the asset basis, proceeds amount, accumulated depreciation amount, and gain or loss amount. The disposal process calculates these amounts, but to use proportional gain recognition, you must move the loss amount in the Deferred Loss field after you are prompted for gains or losses, and you must verify the journal entries that are created before you release the disposal. For the new asset addition, you must calculate the recognized gain, unrecognized gain, and the new asset basis you use in the asset addition for the proportional gain recognition. The new asset basis is not the declared value of the new asset.