Under what condition would exchange amount be used in a non-monetary transaction?

In a non-monetary transaction, the exchange amount is recognized when the transaction has commercial substance. This means that the transaction will significantly change the future cash flows of the parties involved. Commercial substance is an important characteristic because it indicates that the economic realities of the situation have changed as a result of the transaction.

When a transaction possesses commercial substance, the fair value of the assets exchanged is a more reliable measure for recording the transaction than the carrying amounts, allowing for the recognition of gains or losses. This is essential for accurate financial reporting, as it ensures that the financial statements reflect the true economic impact of the exchange on the entities involved.

In contrast, if a transaction lacks commercial substance, recognizing the exchange amount generally would not be appropriate, as there is no significant change in the cash flows or overall economic position. Therefore, it is crucial to determine whether commercial substance exists before deciding on the appropriate accounting treatment for a non-monetary transaction.