Non-Monetary Assets Overview, Characteristics, Comparisons

Therefore, the cost of a non-monetary asset acquired in exchange for another non-monetary asset is the fair value of the asset surrendered to obtain it. Non-monetary assets are assets that are not easily converted into cash unless there is a drastic price reduction. It can occur when a competitor adjusts the selling price of its products downwards or due to a lack of a market where the asset is regularly traded. Non-monetary assets are considered illiquid because they are not easily converted into cash.

  1. This is because these assets are affected by various other factors, meaning the effect of these changes has to be shown or disclosed in the financial statements.
  2. Once an asset is sold, the amount obtained as sales proceeds can vary since there is no standard rate at which the assets can be converted into cash.
  3. For example, a patent has a legal life of 17 years in addition to its economic life, which may be shorter than 17 years.

All intangible assets do not have monetary value and cannot be quantified easily into cash, thus falling into this category. Gold that is not held by a monetary authority and covers the foreign trade of gold worldwide can be classified as nonmonetary assets. Gold, held by a monetary authority such as the bank and held onto as a reserve asset, is a monetary asset. Depending on the country or the standards being used in the company, various methods are used to record restatements. The deciding factor for whether an asset is monetary or non-monetary is based on whether the asset can easily be translated into cash at a given rate. The country or the standards depends on what is being used in the company; there are various methods to record these restatements.

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Reporting Requirements for Annual Financial Reports of State Agencies and Universities

Non-monetary assets are not readily converted into a fixed amount of money in the short term. They include property, plant, and equipment (PP&E), goodwill, patents, and copyrights. These assets are converted to a fixed rate at a given time but are not subject to a change in their recorded value in the financial statements.

Major Accounting Issues Associated With Noncurrent, Nonmonetary Assets

If cash is received on a transaction lacking commercial substance, a partial gain can be recognized. The proportion of the gain recognized is based on the percentage of cash received to the total asset value received (i.e., cash plus the fair value of the new asset). When cash received represents 25% or more of the total fair value received, the total gain is recognized and results in the same accounting as an exchange with a commercial substance. The accounting problem is to determine the applicability of either ASC 845 or ASC 610 to  transactions involving virtual currencies. The “commercial substance” concept is critical to  accounting for nonmonetary exchanges under ASC 845. When companies deal in a business transaction, they exchange non-monetary/nonfinancial assets rather than traditional cash for multiple reasons, such as shortage of cash or better utilization of company assets.

What are Monetary Assets?

In contrast, non-monetary liabilities are those liabilities that are an agreement to fulfill a duty without the involvement of cash. These are disclosed in the financial statements under the liabilities section. This is because these assets are affected by various other factors, meaning the effect of these changes has to be shown or disclosed in the financial statements.

Upgrading to a paid membership gives you access to our extensive collection of plug-and-play Templates designed to power your performance—as well as CFI’s full course catalog and accredited Certification Programs. Company A and Company B decide to swap these assets, as Company A is planning to construct a new office building, and Company B wants to expand its real estate holdings without maintaining a building. Someone on our team will connect you with a financial professional in our network holding the correct designation and expertise. Our mission is to empower readers with the most factual and reliable financial information possible to help them make informed decisions for their individual needs.

If it cannot be readily converted to cash or a cash equivalent in the short term, then it is considered a nonmonetary asset. Monetary assets convey a right to a fixed or easily determinable amount of cash, such as notes receivable and accounts receivable, making it easy to assign a monetary value to them. Thus, the difference between the two concepts is the ease with which a cash value can be assigned to monetary assets, but not to nonmonetary assets. Non-monetary assets are not easily or readily convertible to cash due to fluctuations in market conditions, depreciation, or appreciation.

The value of non-current assets is exposed to regular changes in line with prevailing market values. Companies can adopt revaluation of non-current assets to bring them on par with current market values. Holders of nonmonetary assets could avoid holding losses during periods of inflation. Monetary assets are assets whose values do not fluctuate in dollar terms and that carry an obligation to deliver a certain amount of currency units. However, their purchasing power may change upon a change in the prices of goods and services in general.

The fair value of the asset received is used to measure the cost if it is more evident than the fair value of the asset surrendered. For example, prepaid assets such as insurance are written off to ensure that as their benefits expire or are consumed, the asset is reduced and an expense is recorded. Assets that are not used in the merchandising or production process including assets that are held for resale are not included in this category. Once you have viewed this piece of content, to ensure you can access the content most relevant to you, please confirm your territory.

Some exchanges of non-monetary assets involve a small monetary consideration (referred to as “boot”), even though the exchange is essentially non-monetary. The most common monetary item is simply cash, whether a debt owed by a company (liability), a debt owed to it (asset), or a pile of cash in its account (asset). $100,000 of cash today will still be worth $100,000 a year later, even though the buying power would have decreased slightly due to inflation. A monetary item is an asset or liability carrying a value in dollars that will not change in the future.

A building generally has an economic life of at least 20 to 30 years; a delivery truck may have a life of 100,000 miles. No established market exists for non-financial assets, and asset owners must find potential buyers who are interested in acquiring the nonmonetary assets assets. Once an asset is sold, the amount obtained as sales proceeds can vary since there is no standard rate at which the assets can be converted into cash. The statements in this document should not be treated as legal, tax, or accounting advice.

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