Hi everyone, I have a question regarding the accounting treatment of transfer of assets in Sec 85 rollover.
Scenario: A sole proprietor decides to form a corporation and transfer its assets under Sec 85. He understands that he can transfer the assets at ACB to defer tax on capital gains. However, my question is regarding accounting treatment. Should asset be recorded at FMV or Cost in the accounting books (balance sheet).
FMV = $50,000
ACB = $30,000
Elected amount for transfer is $30,000
Should this asset be recorded at FMV i.e. $50,000 or ACB i.e. $30,000 in accounting books at the time of transfer?
Is this example, POD is less than the FMV. Since the transaction is between the related parties, I am assuming that it will be recorded at ACB. Please share your thoughts.