You work at a small regional accounting firm (you pick a name and location for us). Our firm was hired to assist a gentleman (Carl Client) who just moved his business from his basement to a larger space.

After reviewing the most recent accounting records, your boss discovers that the business owner might have incorrectly recorded the recent exchange of property (still during this fiscal year) and it would need to be corrected in the financial records. Your boss asks you to research the exchange of property and commercial substance rules to determine the guidelines for reporting gains. Your boss is also concerned that there will be some impairment issues due to assets that were damaged during the move to the new business location, so he asks you to research the impairment rules as well.

When would an exchange of equipment have no commercial substance? What ASC governs that transaction? If there is no commercial substance, how do we account for the transaction in the accounting records?

What triggers impairment? What ASC governs that transaction? If there is an impairment, how do we account for the transaction in the accounting records?

Using a professional client letter format (you can find this online), please prepare a client letter providing him with our answer to his accounting issues. The goal of the client letter is twofold: (1) to share with him your advice in a way that he could understand, while ALSO (2) documenting what authority we used in reaching our decision in case he takes the issue to another accounting firm in the future (or gets audited and doesn't come back to us). Compare this to a doctor telling you the diagnosis in layman's terms, then also sharing which tests he completed to determine your illness.