Unlock IFRS Secrets: Master Non Monetary assets

by Shubham Raj

What are Non monetary assets under IFRS

In IFRS, the valuation of non-monetary items depends on the context in which they are being measured and the specific standards applicable to those items. 

Defining Non-Monetary Assets

Non-monetary items are assets and liabilities that are not cash or cannot be directly converted into a fixed amount of cash. Their value is not expressed in terms of a fixed amount of money.

 Examples include property, plant and equipment, intangible assets, and inventories. The primary IFRS standards that guide the valuation of non-monetary items include IAS 2 "Inventories," IAS 16 "Property, Plant, and Equipment," IAS 38 "Intangible Assets," and IAS 36 "Impairment of Assets.

Recognition and Measurement: How are Non-monetary assets are valued at 

Here's how non-monetary items are valued under these standards:

IAS 2 Inventories

Inventories are initially measured at cost, including purchase, conversion, and other costs incurred in bringing them to their present location and condition. Subsequently, they are measured at lower cost and net realisable value (NRV).

IAS 16 Property, Plant, and Equipment

Property, plant, and equipment are initially measured at cost. After initial recognition, entities can choose either the cost model or the revaluation model as their accounting policy:

  • Cost Model: The asset is carried at its cost less than accumulated depreciation and impairment losses.
  • Revaluation Model: The asset is carried at a revalued amount, being its fair value at the revaluation date, less any subsequent accumulated depreciation and impairment losses. Revaluations should be made regularly to ensure that the carrying amount does not differ materially from that, which will be determined using fair value at the balance sheet date.

IAS 38 Intangible Assets

Intangible assets are initially recorded at cost. Subsequently, like property, plant, and equipment, intangible assets can be carried out using either the cost model or the revaluation model, subject to the same conditions.

IAS 36 Impairment of Assets

IAS 36 requires that an entity assess at each reporting date whether there is any indication that an asset may be impaired (its carrying amount may be higher than its recoverable amount). The recoverable amount is the higher an asset's fair value, the fewer costs to sell, and the lower its value in use. Suppose the carrying amount exceeds the recoverable amount. In that case, the asset is considered impaired and must be written down to its recoverable amount.

These standards ensure that non-monetary items are measured and reported to reflect their current economic value to the entity, providing helpful information to financial statement users.

Recognition and Measurement: How is the Exchange of non-monetary assets valued at

The Exchange of non-monetary assets is covered under IFRS primarily by IAS 16 "Property, Plant and Equipment" and IAS 38 "Intangible Assets". The accounting for such exchanges focuses on the fair value of the assets exchanged and the recognition of any gain or loss resulting from the transaction. Here's an overview of how these exchanges are accounted for:

Recognition of the Asset Acquired

The principle is that an asset acquired in an exchange of non-monetary assets should be measured at fair value unless:

  • The exchange transaction lacks commercial substance; or
  • The fair value of neither the asset received nor the asset given up is reliably measurable.

If either of these exceptions applies, the asset's cost is measured at the carrying amount of the asset given up.

Determining Commercial Substance

An exchange transaction has commercial substance if:

  • The configuration (risk, timing, amount) of the cash flows of the asset received differs from the configuration of the cash flows of the asset transferred or
  • The entity-specific value of the portion of the entity's operations affected by the transaction changes as a result of the Exchange and
  • The difference in (1) or (2) is significant relative to the fair value of the assets exchanged.

When an exchange has commercial substance, it is assumed that the fair values of the assets exchanged can be measured reliably, and the transaction should be accounted for at fair value.

Measurement at Fair Value

When the Exchange has commercial substance, the asset received is measured at its fair value unless reliably measurable. Suppose the fair value of the asset received is not reliably measurable. In that case, its cost is measured at the carrying amount of the asset given up.

Recognition of Gain or Loss

A gain or loss arising from exchanging non-monetary assets is recognised in profit or loss based on the fair values of the assets involved. The gain or loss is the difference between the fair value of the asset received and the carrying amount of the asset given up, including any accumulated depreciation and impairment losses.


Suppose a company exchanges an old machine (Machine A) with a carrying amount of $10,000 (and a fair value of $15,000) for a new machine (Machine B) with a fair value of $20,000. The company also pays $5,000 in cash as part of the Exchange.

The accounting entries would be as follows:

  • Debit "Machine B" (new machine) at its fair value of $20,000.
  • Credit "Machine A" (old machine) at its carrying amount of $10,000.
  • Credit "Cash" at $5,000.
  • Recognise a gain of $5,000 (the difference between the fair value of the asset received $20,000 and the sum of the carrying amount of the asset given up $10,000 plus cash $5,000) in profit or loss.

This treatment ensures that the Exchange is accounted for at the fair value of the assets involved, reflecting the economic substance of the transaction and providing relevant information to users of the financial statements.

Closing comments

The accounting for the Exchange of non-monetary assets under IFRS, primarily through IAS 16 "Property, Plant and Equipment" and IAS 38 "Intangible Assets," illustrates the importance of recognising and measuring these transactions at fair value, provided they have commercial substance. This ensures that the financial statements accurately reflect the economic impact of these exchanges on the entity's financial position and performance. The recognition of gains or losses arising from such transactions further enhances the transparency and relevance of the financial information provided to users.

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