Business entities more frequently mention such an exchange form of assets as barter. In the following there are features of accounting of barter transactions, particularly if exchange is with fixed assets and inventory.
According to para.2 of Art.715 of the Civil Code of Ukraine (hereinafter − CCU) each party of barter contract is the seller of goods, which to be transmitted to the exchange and the buyer that gets in return.
Objects (inventories or fixed assets, hereinafter − FA), which the parties of barter transactions will exchange, can be similar or dissimilar.
According to para.4 of Accounting Standards 7 “Fixed Assets”, similar (homogeneous) objects are the objects that have the same functional purpose and the same fair value.
Determination of fair value could be found in para.4 of Accounting Standards 19 “Business Combinations” and in para.4 of Accounting Standards 7. Therefore, the fair value is the amount for which an asset could be sold or liabilities could be paid under normal conditions at a certain date. If the objects do not meet the definition of similar (homogeneous) specified in para. 4 of Accounting Standards 7, they are considered to be dissimilar (inhomogeneous).
The similarity of assets was not provided for inventories. Therefore, we are going to be guided by requirements of Accounting Standards 7.
As for exchange of similar inventories, it is worth noting that para.13 of Accounting Standards 9 “Inventories” states that the initial cost of the items of inventory acquired in exchange for similar stocks is equal to net book value of transferred inventories. If the net book value of inventories transferred exceeds their fair value, the initial value of received inventories is their fair value. The difference between the book value and the fair value of the transferred inventories should be included into the expenses of reporting period. The initial value of inventories acquired in exchange for dissimilar inventories is recognized fair value of the received inventories.
Concerning the exchange of similar FA, it should be guided by the norms of para.12 of Accounting Standards 7. Thus, the original value of the object of FA received in exchange for a similar object is equal to the residual value of transferred object of FA. If the residual value of the transferred object exceeds its fair value, the initial value of the object of FA received in exchange for a similar object is the fair value of the object with the inclusion of the difference in expenses of reporting period.
According to para.13 of Accounting Standards 7, the initial value of the object of FA purchased in exchange (or partial exchange) for dissimilar asset, is equal to the fair value of the transferred non-monetary asset increased (reduced) by the amount of cash or its equivalents that was transferred (received) during the exchange.
It is worth noting that according to para.15 of Methodological Guidelines on accounting of fixed assets, approved by the Ministry of Finance of Ukraine of 30.09.2003 No. 561 (hereinafter – Guidelines 561), the company valuates FA object acquired in exchange for non-monetary asset (or a combination of monetary and non-monetary assets) at fair value unless the exchange transaction is of commercial character. The acquired object should be valuated in this order and in case if the company can not immediately, on the date of the transaction, derecognise the transferred asset. If the purchased object can not be valuated at fair value, it should be valuated at the net book value of the transferred asset.
Company determines whether an exchange transaction is of commercial character based on valuation of expected changes in future cash flows due to the transaction. Exchange transaction is of commercial character if significant (substantial) regarding the fair value of assets exchanged is:
- change in value of risk of time and amount of cash flows between received and transferred assets;
- or the value of a part of the company, affected by the transaction, changes as a result of exchange.
But despite such special regulations of Guidelines 561, in our opinion, it should be guided by more important regulatory norms of Accounting Standards 7.
It should be additionally recalled the provisions of para.9 of Accounting Standards 15 “Revenue”. Thus, the revenue should not be recognized if the exchange of goods (works, services and other assets), which are similar in purpose and have the same fair value.
But taking into account the provisions of Art.4 of the Law of Ukraine “On Accounting and Financial Reporting in Ukraine” of 16.07.1999 No. 996-XIV and Sec.1 of para.7 of Accounting Standards 16 “Expenses”, the expenses for exchange transactions of similar objects are not recognized in accounting.
