Superb Bhd Acquires Machine From Marvel Bhd

What is the correct treatment for Superb Bhd in acquiring a machine from Marvel Bhd?

Should Superb Bhd recognize the transaction as an exchange of assets or the issuance of shares?

The Correct Treatment for Superb Bhd

Superb Bhd should recognize the transaction as an exchange of assets rather than the issuance of shares.

Superb Bhd, an agricultural company, recently bought a machine from Marvel Bhd and decided to settle the payment by issuing 55,000 shares. The fair value of the shares and the machine on 31 March 2021 were RM1.50 and RM80,000, respectively. However, Superb Bhd was uncertain in determining the value of the machine.

It is advised that Superb Bhd should treat the transaction as an exchange of assets. The machine acquired from Marvel Bhd should be recorded at its fair value of RM80,000. By recognizing the machine at its fair value, Superb Bhd accurately reflects the economic substance of the transaction and provides reliable information in its financial statements.

This treatment aligns with accounting principles that require assets to be recognized at their fair values when acquired through exchange transactions. It ensures transparency and consistency in financial reporting, benefiting both the company and its stakeholders.