In accounting for exchanges of similar assets considered to have "commercial substance," financial accounting recognizes all gains and losses.

Question

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In exchanges of similar assets with commercial substance, financial accounting recognizes all gains and losses. When an exchange has commercial substance, it means that the transaction affects the future cash flows of the company, and therefore the exchange has economic significance beyond simply changing the composition of assets. In such cases, any gain or loss should be recognized in the financial statements.

In Accounting for Exchanges of Similar Assets Considered to Have