Nonmonetary Exchanges of Real Estate
Typically, the acquisition and disposition of real property is effected through use of cash or other monetary assets and liabilities, such as mortgage loans or notes. Monetary assets and liabilities are assets and liabilities whose amounts are fixed in terms of units of currency by contract or otherwise.1 The amount of monetary assets and liabilities exchanged generally provides an objective basis for measuring the cost of the real estate acquired as well as for measuring gain or loss on the real estate transferred.2
Real estate exchange transactions involve the exchange of real estate for other real estate, that is, the exchange of nonmonetary assets for other nonmonetary assets. Two of the issues that have been debated are: Should real estate properties acquired in nonmonetary exchange transactions be recorded at their fair values? And: Should gain be recognized when appreciated real property is exchanged for other real property, such as an office building being exchanged for another office building by a real estate investment trust (REIT)?
The disposition of real estate in real estate exchange transactions is not governed by the provisions of the real estate sale guidance in Subtopic 360-20 (Financial Accounting Standards Board (FASB) Statement No. 66); rather, Topic 845, Nonmonetary Transactions (Accounting Principles Board (APB) Opinion No. 29, Accounting for Nonmonetary Transactions) is the guidance applicable to ...