Your nonprofit organization may receive contributions in the form of nonfinancial assets, which are goods and services received at no cost or below market cost, or other noncash donations. Common examples of nonfinancial assets include items such as food, clothing, supplies, furniture and equipment as well as professional services or facilities. Generally Accepted Accounting Principles (GAAP) requires that a nonprofit record donated nonfinancial assets on the financial statements.
Donated services are recognized as contributions if the services meet the following criteria: a) create or enhance nonfinancial assets or b) require specialized skills that are performed by people with those skills and would otherwise be purchased by the Organization. Volunteer time for doing office work or volunteering at events would not meet these requirements, but donated time from an attorney for legal assistance or a doctor for a clinic would qualify to be recorded.
Accounting Standards Update No. 2018-08, Not-for-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made was effective for years ended June 30, 2022 and forward. The standard focused on the recording and disclosure of nonfinancial assets. If you receive donated nonfinancial assets and your audit is complete, you should notice some additional disclosures related to your in-kind donations. One of those additional disclosures is how the in-kind donations were valued.
Listed below are example valuation techniques for common in-kind donations:
- Donated food is valued at the average price based on three local retailers.
- Donated auction items are valued at the final sale price.
- Donated supplies, furniture and equipment at current market price of the item or similar item.
- Donated services are valued at fair value as stated by the individual or company providing the services.
- Donated rent is valued at the difference in the fair value of the space determined by the average market rent in the area less the amount paid.
Additional disclosures are required about the intended use of the donated items and services (generally they are used in the organizations operations and programs). You also will need to disclose if there are any donor-imposed restrictions on the donated items. An example of this would be if a donor gave a piece of artwork and stipulates it can’t be sold but could be donated to another nonprofit. The organization would have to disclose this situation.
Two noncash donations that are common for nonprofit organizations to receive, but technically do not meet the definition of in-kind donations, are gift cards and stock. Many organizations forget to record the value of the gift cards received. Gift cards should be recorded as an asset and contribution when received and then when used in operations or given out to clients, remove the asset and record the expense.
Stock donations can also present unique obstacles. Once the organization receives the stock, a contribution should be recorded at the fair value of the stock on the date received. If the organization’s policy is to immediately sell the stock, any difference between the proceeds received from the sale of stock and the fair value recorded on the date the stock was donated will be recorded as a realized gain or loss on the organization’s books. If the organization incurs any fees related to the selling of the stock, that amount should be recorded as investment fees expense.
It is best practice to have a written gift acceptance policy that documents the kinds of gifts the organization accepts, how they are valued, and how they will be handled (used in programs, sold, etc.).
If you have any questions regarding donated nonfinancial assets or would like a sample gift acceptance policy, please reach out to your Hawkins Ash professional.