Question

Which of the following non-monetary exchange transactions has commercial substance?

a. Exchange of assets with no difference in future cash flows.
b. Exchange of products by companies in the same line of business with no difference in future cash flows.
c. Exchange of assets with a difference in future cash flows.
d. Exchange of an equivalent interest in similar productive assets that causes the companies involved to remain in essentially the same economic position.

Answer 1

The correct non-monetary exchange transaction with commercial substance is exchange of assets with a difference in future cash flows.

Step-by-step explanation:

The correct answer is c. Exchange of assets with a difference in future cash flows has commercial substance in non-monetary exchange transactions. Commercial substance means that the transaction has an impact on the financial position of the companies involved.

For example, if Company A exchanges a piece of land with Company B in exchange for a building, and the building is expected to generate higher future cash flows for Company A, then this transaction has commercial substance.

On the other hand, options a, b, and d do not involve any difference in future cash flows and therefore do not have commercial substance.