Accounting for Involuntary Conversions of Nonmonetary Assets to Monetary Assets—an interpretation of APB Opinion No. 29
This Interpretation clarifies the accounting for involuntary conversions of nonmonetary assets (such as property or equipment) to monetary assets (such as insurance proceeds). Examples of such conversions are total or partial destruction or theft of insured nonmonetary assets and the condemnation of property in eminent domain proceedings. A diversity in practice exists in accounting for the difference between the cost of a nonmonetary asset that is involuntarily converted and the amount of monetary assets received. Generally, that difference has been recognized in income as a gain or loss. In other cases, that difference has been accounted for as an adjustment to the cost of subsequently acquired replacement property. This interpretation requires that gain or loss be recognized when a nonmonetary asset is involuntarily converted to monetary assets even though an enterprise reinvests or is obligated to reinvest the monetary assets in replacement nonmonetary assets.