Why is commercial substance important in determining the accounting treatment of an asset exchange?

• A. It ensures that the transaction is legal and complies with tax regulations.
• B. It determines whether the transaction will affect future cash flows and thus how gains or losses are recognized.
• C. It confirms that the transaction will not affect the company's liabilities.
• D. It guarantees that the new asset is more valuable than the old asset.

Answer: (B)