I'm pretty sure that a short-term lease would not be
like-kind property. So, it would not be a like kind
exchange. I would say that the sales price of the old
vehicle would be the value of the discount and the value of
the lease (PV of cash payments) to determine your gain or
loss. The amount of the discount should be added to the
cost of the merchandise purchased and the lease should be
recorded as a prepayment and expensed based on when you
would have made the cash payments under the lease.

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"Bill Lentz" <blentz[at]negatorygoodbuddy.prodigy.net> wrote:

- quote -

That's sure an "interesting" transaction (meaning,
complicated). No, I don't think it's a like-kind exchange
because what you received was an operating lease on an auto,
not the auto itself. So you have to figure out the value of
the trade. The simplest might be to start with what a
two-year lease on the new car "normally" require in the way
of payments: cap cost reduction plus payments, and figure
the present value of that.

Allocate that figure between the two assets you gave up in
proportion to their fair market values. Recognize the sale
of merchandise immediately. This may or may not be at the
stated discount, depending on the allocated lease value.

Set up a prepaid lease asset for the remaining Net Tax Value
and amortize over the lease term, as you suggested.

--
Tom Healy, CPA
Boulder, CO
Web: http://www.tomhealycpa.com

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First off it seems to me that this cannot be a "Like Kind
Exchange" since the merchandise is involved. Also, it
shouldn't be able to be a "like Kind Exchange" since there
isn't a purchase provision on the lease. And if there were a
purchase provison then the cost of that purchase should
constitute "boot". Also, I would be questioning if the
merchandise can/should be considered "boot" since that may
affect how the loss can be taken. Also, what is the retail
value of the lease and how does it compare to the NBV of the
car and the retail value of the merchandise?

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I curious about the tax accounting ( and books too for that
matter) for the following transaction:

C Corp owns an automobile with a tax NBV of about $15,000.
C corp is a retailer and has a customer who is a car dealer.

C corp arranges to swap the auto and to sell a piece of
merchandize at a discount (but not below cost) to car dealer
customer in exchange for a two year lease on a new
automobile. The two year lease requires no cash payments,
and there is no purchase option at the end of the lease.

What is the "cost" of the leased auto. Should I assign it
the NBV of the auto given up and amortize that over two
years? Doesn't seem like I should recognize the loss on the
auto given up in the current period.

Should I assign any of the 'normal' profit on the
merchandize sold at a discount to the lease?

Thanks
Bill

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