7.4 Gifts of noncash assets

Some noncash gifts represent goods and services needed to carry out a donee’s programs that would otherwise have to be purchased if not provided by donation. Other noncash gifts are given with the intention that they be sold to generate resources for use in carrying out the donee’s mission. As used in this section, noncash assets include financial assets (for example, gifts of equity instruments and securities/financial instruments) as well as nonfinancial assets. Gifts of noncash nonfinancial assets are commonly referred to as gifts in kind, or GIK, and can take a variety of forms, such as property, equipment, medical supplies, food, clothing, and household items.

In some situations, it can be challenging to determine whether a transfer of noncash assets is a contribution received by the recipient NFP, or whether the recipient NFP is acting as an agent in transferring the assets to the ultimate donee organization. This section discusses situations when noncash assets are a contribution to the recipient NFP. NP 8 discusses situations when the recipient NFP is acting as an agent.

Chapter 5 of AAG-NFP provides information on reporting and measuring a variety of noncash gifts, including gifts in kind; contributions of fund-raising materials, informational materials, advertising, and media time or space; below market interest rate loans; and bargain purchases.

7.4.1 Recognizing donated noncash assets

The guidance for recognizing contributions of noncash assets is generally the same as for cash contributions, with a few exceptions. These exceptions include gifts of noncash assets that have no intrinsic value to the recipient (see NP 7.4.1.1) and gifts of works of art or historical treasures that meet certain conditions (see NP 7.4.1.2).

When the donee recognizes contribution revenue, the corresponding entry depends on the form of the noncash asset received. A donated security would be reported as an increase in investments. Donation of an intangible (such as intellectual property) would be recognized as an intangible asset. Donation of an item of inventory or a fixed asset that is capitalizable by the donee under its accounting policies would be reflected as an increase in inventory or of fixed assets. Donation of an item that is not capitalizable (for example, office supplies) results in an increase in expense.

7.4.1.1 Donated noncash assets with uncertain (or no) value

Unlike cash (which always has value), some donated noncash assets may not provide value to a donee. Chapter 4 of Concepts Statement 8 indicates that an essential characteristic of an asset is “economic benefit,” which is the capacity to provide services or benefits to the entities that use them. Significant uncertainty about whether a donated asset has value (or economic benefit) to the donee may indicate that an item received or given should not be recognized as a contribution. ASC 958-605-25-3 indicates that contributed tangible property should be “worth accepting” and ASC 958-605-30-11 indicates that gifts in kind should be able to be “used or sold” as a prerequisite to recognition.

Excerpt from ASC 958-605-25-5

Contributed tangible property worth accepting generally possesses the common characteristic of all assets—future economic benefit or service potential. The future economic benefit or service potential of a tangible item usually can be obtained by exchanging it for cash or by using it to produce goods or services.

Excerpt from ASC 958-605-30-11

Gifts in kind that can be used or sold shall be measured at fair value.

For example, if the donated assets cannot either be used internally by the donee in carrying out its activities or sold to generate financial resources, the donation has no value to that entity. Similarly, an item accepted solely to be saved for its potential future use in scientific or educational research that has uncertain value (or perhaps no value) or has highly restricted alternative uses would not be recognized. Examples of those items include contributions of flora, fauna, photographs, and objects that are identified with historic persons, places, or events. In theory, the donor of such items would not recognize contribution expense for such items but would simply write off the asset (if recognized) and report a loss on disposal. However, because the notion of value is subjective, different conclusions might be reached by the donor and donee.

7.4.1.2 Exception for donated collection items

By nature, donations of works of art, historical treasures, or similar assets are considered donations of long-lived assets. However, if such items will be added to the collection of a donee with a policy of non-capitalization, pursuant to ASC 958-605-25-19, no contribution revenue would be recognized. See NP 10 for accounting for collections.

Irrespective of the donee’s policy, the donor would report the gift in the same manner as a gift of a long-lived asset, unless the item is from a donor’s non-capitalized collection. In that event, the donor would not recognize contribution expense but instead, would provide the disclosures required by ASC 958-360-50-6.

7.4.2 Measuring donations of noncash assets

Donees measure contributions of noncash assets received at the fair value of the asset received, and donors measure them at the fair value of the asset given up. In theory, fair value for donor and donee would be the same, but no requirement exists for the donor and donee to agree on a fair value to be used. Some specific considerations related to applying the ASC 820 fair value model to donated noncash items are discussed at NP 7.4.2.1. As described in NP 7.4.2.2, ASC 958-605-25-20 modifies the initial contribution date fair value for measurement of gifts of items donated for sale in charity auctions.

7.4.2.1 Applying the ASC 820 model to donations of noncash assets

Some donations of noncash assets are relatively easy to measure using the ASC 820 model, such as donations of marketable securities, automobiles, or real estate. But for many nonfinancial assets (for example, food, supplies, used clothing and household items, intangible assets, and pharmaceuticals), valuation is more difficult due to a lack of readily available observable inputs. The fact that valuation of those gifts can be challenging does not eliminate the need to make a good faith estimate. As discussed in NP 7.4.1.1, the only exception to recognition at fair value for an NFP is a significant uncertainty regarding the existence of value.

ASC 820 broadly addresses the measurement of both financial and nonfinancial assets. The application of ASC 820 to financial assets (such as investments) differs from the application to nonfinancial assets (such as fixed assets, intangibles, and inventory or supplies). Although as noted below, ASC 958-605-30-11 and ASC 958-605-30-9 contain additional considerations for inputs to valuation of GIKs by NFP entities, the fundamental principle is to record GIKs at fair value in accordance with ASC 820. Also, ASU 2020-07, Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets, added incremental disclosures regarding the fair value measurement of contributed nonfinancial assets for NFPs, specifically related to the valuation techniques used, related inputs, and the principal or most advantageous market. See NP 7.4.6 for further discussion of these disclosure requirements.

Excerpt from ASC 958-605-30-11

In determining fair value, entities should consider the quality and quantity of the gifts, as well as any applicable discounts that would have been received by the entity, including discounts based on that quantity if the assets had been acquired in exchange transactions.

Inputs for measuring fair value of contributed inventory items may be obtained from published catalogs, vendors, independent appraisals, and other sources. If methods such as estimates, averages, or computational approximations, such as average value per pound or subsequent sales, can reduce the cost of measuring the fair value of inventory, use of those methods is appropriate, provided the methods are applied consistently, and the results of applying those methods are reasonably expected not to be materially different from the results of a detailed measurement of the fair value of contributed inventory.

The following considerations may be helpful when estimating the fair values of contributions of nonfinancial assets:

• Identifying market participants. Market participants are entities who would transact for the goods and are able to buy the product at its market price. Because of the nature of GIK, a hypothetical market participant scenario may need to be developed. Depending on the nature of the goods, these might include other NFPs, governmental agencies, or for-profit entities.
• Base utility value. Certain GIK items may not have a readily identifiable market, but typically, they have some base level of utility that is marketable. NFPs should consider that base utility when estimating fair value.
• Inputs to valuation techniques. After the principal market is identified, NFPs must identify a source for exit prices in that market. When a GIK item differs from a similar item observed in a marketplace transaction, the NFP should consider whether an adjustment to the pricing input is needed. In doing so, entities should consider the quality and quantity of the donated assets, as well as any applicable discounts that would have been received by the entity (including discounts based on that quantity if the assets had been acquired in exchange transactions). For example:
  • If GIK items are donated in wholesale quantities but only retail values are readily available to use as inputs to fair value, then a wholesale discount generally would be applied.
  • If the GIK items have earlier expiration dates than those of products typically sold in the marketplace, or if technological advances have made the GIK less desirable than similar items in the marketplace, a valuation discount should be applied. For example, a product with 25% of its shelf life remaining would have a lower fair value than the same product with significant shelf life remaining.
  • A land conservation easement (which is recorded like a deed and is binding upon future owners of the property) would be considered by a hypothetical buyer in pricing the asset and may affect the land’s value.
  • Pharmaceuticals sourced in foreign countries that do not meet US Food and Drug Administration standards cannot be sold in the US. That restriction on sales would need to be considered in valuing donated pharmaceuticals, as it would also apply to market participants.

  Restrictions on an asset’s use that are specific to the donee do not affect the asset’s fair value, because a hypothetical buyer’s use of the asset would not be affected by them. This includes purpose or time restrictions imposed by a donor. If those restrictions are specific to the entity to whom the asset is donated (and thus, would not transfer to a market participant), fair value measurement would not be affected. Those restrictions should be reflected in the donee’s classification of net assets, not in the measurement of fair value. For example:

  • A manufacturer might donate excess inventory (such as pharmaceuticals, clothing, toys, etc.) with the stipulation that the donee cannot sell the assets (that is, the NFP can only use them in carrying out its programs). Because that restriction would not transfer to a market participant, it would not be considered in pricing the asset.
  • A donor might specify that the donee use the items in its work in a stipulated geographic area (for example, a specific country). Because that restriction would not transfer to a market participant, it would not be considered in pricing the asset.
  Example NP 7-2 illustrates a restriction that would not impact measurement of the donated land. EXAMPLE NP 7-2
  Restriction on use of donated asset does not impact measurement

  A donor contributes land currently used as a playground to an NFP neighborhood association. The donor specifies that the land must continue to be used by the association as a playground in perpetuity; however, the association is not restricted from selling the land. Upon review of relevant legal and other documentation, the association determines that if it sold the land, the fiduciary responsibility imposed by the donor’s restriction would not transfer to market participants.

  Would the donor’s restriction impact the fair value of the land/contribution recognized by the association?

  Analysis

  No. The donor restriction requiring the land to be used as a playground applies only to the association and would not transfer to market participants. Without the restriction on the use of the land by the association, the land could be used as a site for residential development. Therefore, the fair value of the land would be the higher of its fair value used as a playground or its fair value as a site for residential development.

  Example NP 7-3 illustrates a restriction that would impact measurement of the donated land and is derived from ASC 820-10-55-54.

  EXAMPLE NP 7-3
  Restriction on use of donated asset that impacts measurement

  A donor contributes land currently used as a playground to an NFP neighborhood association. The donated parcel of land is subject to an easement allowing a utility to run power lines across it. By regulatory authority, the easement is permanently associated with the specific parcel of land.

  Would this restriction be considered in determining the fair value of the donated land? Analysis

  The easement would need to be considered in measuring the fair value of the land. Because it is specific to that parcel of land (i.e., the easement is a characteristic of the asset), it would transfer with the land to any market participant. Therefore, the fair value measurement of the land would need to consider the effect of the easement, regardless of whether the highest and best use is as a playground or as a site for residential development.

  7.4.2.2 Measurement exception for items donated for charity auctions

  A donee might receive donations of items to be sold in fundraising events such as charity auctions. In those cases, the amount recognized as contribution revenue should be the amount received when the item is ultimately sold. Typically, this would involve a two-step process. When the item is initially received from the donor, it would be reported as a contribution measured at its fair value. When the item is subsequently sold, the difference between fair value and the amount ultimately received is recognized as additional contribution income (if the item sells for more than the fair value) or as a reduction in contribution income (if it sells for less than fair value). The net effect is that the recognized contribution amount represents the amount received at auction for the gift. AAG-NFP 5.151 provides an example of this accounting.

  7.4.3 Donor’s recognition and measurement of gifts of noncash assets

  The requirement to recognize contribution expense at the fair value of the asset given up has unique accounting consequences for a donor. Normally, accounting for disposition of an asset by other than sale would involve derecognizing the asset and recognizing a corresponding amount of loss on disposal for the carrying value. However, ASC 720-25-25-2 requires that if the fair value of a contributed asset differs from its carrying amount, the donor must recognize a gain or loss upon disposition.

  If the fair value of an asset transferred differs from its carrying amount, a gain or loss shall be recognized on the disposition of the asset (see paragraphs 845-10-30-1 through 30-2).

  As a general rule, the recognition and measurement of a noncash contribution of assets by a donor generally results in the same economic outcome as if the donor had made a cash gift to the donee, which the donee in turn used to purchase the good from the donor. Example NP 7-4 illustrates this concept.

  EXAMPLE NP 7-4
  Accounting by donor and donee for contribution of used medical equipment

  As a result of a natural disaster, Clinic lost much of its diagnostic equipment. In response to appeals for assistance, Hospital (an unrelated entity) donated a piece of used diagnostic equipment. The donated equipment was fully functional and in use by Hospital at the time of the gift. Hospital’s carrying value for the equipment was $100,000 and its fair value was $300,000.

  How would Hospital and Clinic report this transaction? Analysis

  Hospital would report the donation of the equipment in accordance with the provisions of ASC 720 and ASC 958-720. Thus, contribution expense would be reported based on the fair value of the contribution made. Hospital would reflect an entry to remove the donated asset and recognize contribution expense along with a gain on the disposition, as follows:

  Dr. Contribution expense Cr. Gain on disposition of PP&E

  To record gift of used equipment to Clinic with fair value of $300,000 and carrying amount of $100,000.

  Recording the gift in this manner is economically similar to the result if Hospital had instead made a cash donation of $300,000 to enable Clinic to purchase the equipment from Hospital. In that event, Hospital’s entries would have been:

  Dr. Contribution expense To record cash gift to Clinic. Cr. Gain on disposition of PP&E To record sale of PP&E to Clinic.

  Clinic would record the contribution received in accordance with the provisions of ASC 958-605, as follows:

  Cr. Contribution revenue To record contribution of PP&E from Hospital.

  The contribution revenue increases net assets without donor restrictions, and in accordance with ASC 954-220-45-8(d) would be reported below the performance indicator in Clinic’s statement of operations.

  7.4.4 Measuring promises to give noncash assets at a future date

  Sometimes a donor will unconditionally promise to donate a noncash asset in the future. For example, an individual might enter into an agreement to transfer a parcel of land in four years, or a company might promise to give 1,000 shares of its stock in four years. As is the case with promises to give cash, such gifts are reported at fair value as contribution revenue in the period the promise is made, even though the promised asset will not be transferred until a future date. There are uncertainties in these gifts related to potential changes in value of the underlying asset between the time it is promised and the time it is actually transferred, as well as the potential that the donor may not follow through on their promise. Fair value measurement takes those uncertainties into consideration.

  As with promises to give cash, expectations related to collectibility (i.e., the performance of the donor in transferring the assets) as well as changes in the value of what will be received are contemplated when initially measuring the fair value of the contribution. If a present value technique is used, fair value of the contribution would be based on the present value of the projected fair value of the underlying noncash items on the date it is to be transferred. That is, the future fair value of the item should be discounted to reflect the timing and uncertainty of the item’s future delivery, using an appropriate discount rate. In cases when the future fair value of the underlying asset is difficult to determine, ASC 958-605-30-8 allows the fair value of the promise to be based on the fair value of the underlying asset at the date of initial recognition. If that approach is used, the fair value of the promise is not discounted for the time value of money.

  The value of the promised noncash asset might change between the date the promise is made and the date the asset is transferred. If the underlying asset is a financial instrument with a readily determinable fair value, both increases and decreases in fair value are recognized. For other types of promised assets, subsequent measurement of the contribution receivable will depend on (1) whether the contribution receivable for the noncash asset is eligible for the fair value option under ASC 825-10 and (2) if eligible, whether the entity elects the fair value option.

  ASC 825-10-15-4 states that an entity may elect the fair value option for recognized financial assets. To meet the definition of a financial asset, the contribution receivable must ultimately result in cash or an ownership interest in another entity. Therefore, many contributions of noncash assets will not be eligible for the ASC 825 fair value option. For example, unconditional promises to give services, fixed assets, or the use of fixed assets (e.g., a “free” lease) are neither rights to receive cash nor readily convertible to cash, nor do they represent an ownership interest in another entity. See FV 5.4 for more information about the scope and application of the fair value option.

  If the contribution receivable for a noncash asset other than a financial instrument with a readily determinable fair value is eligible for the ASC 825 fair value option, and the entity has elected the fair value option, both increases and decreases in the value of the contribution receivable are recognized in contribution revenue in the period that the value changes pursuant to ASC 958-310-35-11. If the contribution receivable is not eligible for the ASC 825 fair value option, or if it is eligible but the entity does not elect the ASC 825 fair value option, then in accordance with ASC 958-310-35-12 and ASC 958-310-35-13, decreases in value are recognized in contribution revenue in the period in which those decreases occur, but subsequent increases prior to receipt are not recognized. ASC 958-310-55-1 provides an illustration of the accounting for various types of promised assets and the reasons for the change in value (i.e., due to the collectibility of the receivable or changes in the fair value of the underlying asset) for assets for which the ASC 825 fair value option is not applied.

  Regardless of the type of underlying asset or whether the ASC 825 fair value option is elected (if eligible), changes in value are reported in contribution revenue in the periods in which they occur and are reported in the net asset class in which the contribution was originally reported or in the net asset class in which the net assets are represented.

  7.4.5 Liquidation of noncash gifts in the statement of cash flows

  Obtaining an asset by gift is an example of a noncash transaction. Because such transactions do not involve cash receipts or payments, they are excluded from the body of the statement of cash flows and, instead, disclosed either in narrative form in the notes to the financial statements or reported on the face of the statement of cash flows as a supplemental disclosure. If the NFP uses the indirect method of reporting cash flows, noncash contributions would be reflected as part of the reconciliation of the change in net assets to net cash from operations.

  If the noncash gift will be converted to cash by the NFP, the receipt of the gift (a noncash transaction) and the conversion of the assets into cash (a cash transaction) must be reported separately. For example, if an NFP received a donation of real estate that will not be used in the entity’s operations, the NFP’s subsequent sale of the real estate for cash would be reported as proceeds from sale of investment property (i.e., an investing cash inflow). Proceeds from the sale of donated collection items also would be investing cash inflows.

  Special considerations apply to reporting certain contributed investments that are converted to cash immediately or nearly immediately. These are discussed at NP 4.5.1.

  7.4.6 Presentation and disclosure of gifts of nonfinancial assets

  ASU 2020-07, Presentation and Disclosure by Not-for-Profit Entities for Contributed Nonfinancial Assets, prescribes new presentation and disclosure requirements designed to provide greater transparency regarding the valuation of contributed nonfinancial assets. The provisions are required in financial statements for annual periods beginning after June 15, 2021 and interim periods within annual periods beginning after June 15, 2022. The ASU requires separate presentation of the amount of contributed nonfinancial assets in a separate line item in the statement of activities and additional disclosures, as articulated below.

  Nonfinancial assets are any assets that are not financial assets (such as cash or investment securities), and include land, buildings, use of facilities or utilities, materials and supplies, intangible assets, or services. In addition to the disclosures described in this section, NP 7.5.1.5 describes incremental disclosures for contributions of volunteer services.

  ASC 958-205-45-36 states that contributed nonfinancial assets should be presented as a separate line item in the statement of activities, apart from contributions of cash and other financial assets. NFP HCOs may be required to present contributions of nonfinancial assets in both the statement of operations (including above and below the performance indicator) and the statement of changes in net assets, depending on the nature of the contributions received. ASC 954-220-45-8 requires contributions of long-lived assets to be excluded from the NFP HCO performance indicator. Therefore, if an NFP HCO receives contributions of nonfinancial long-lived assets as well as contributions of other nonfinancial assets, the NFP HCO could be required to present two separate line items for contributed nonfinancial assets (i.e., one above and one below the performance indicator). In addition, if the NFP HCO receives contributions of restricted nonfinancial assets, they would be presented in the statement of changes in net assets.

  Excerpt from ASC 958-605-50-1A

  For each category of contributed nonfinancial assets, an NFP also shall disclose the following:

  Qualitative information about whether contributed nonfinancial assets were either monetized or utilized during the reporting period. If utilized, a description of the programs or other activities in which those assets were used shall be disclosed.

  The NFP’s policy (if any) about monetizing rather than utilizing contributed nonfinancial assets. A description of any donor-imposed restrictions associated with the contributed nonfinancial assets.

  A description of the valuation techniques and inputs used to arrive at a fair value measure in accordance with paragraph 820-10-50-2(bbb)(1), at initial recognition.

  The principal market (or most advantageous market) used to arrive at a fair value measure if it is a market in which the recipient NFP is prohibited by a donor-imposed restriction from selling or using the contributed nonfinancial assets.

  An NFP is required to disclose in the notes to financial statements a disaggregation by category of the amount of contributed nonfinancial assets recognized within the statement of activities that depicts the type of contributed nonfinancial assets, and additional information about each category, in accordance with ASC 958-605-50-1A.

  As part of the disaggregation disclosures, ASC 958-605-50-1A requires disclosure of the principal market (or most advantageous market) used to arrive at fair value if the NFP is prohibited by a donor-imposed restriction from selling or using the contributed nonfinancial assets. This disclosure is unique to NFP entities and is not a standard disclosure element under ASC 820. This disclosure was added by ASU 2020-07 because donor restrictions on the use or distribution of an asset, while binding on the NFP, are not an inherent characteristic of the asset and thus are not taken into consideration for valuation purposes, as discussed in NP 7.4.2.1. An NFP must consider the highest and best use concept when determining the fair value of nonfinancial assets, which takes into account a market participant's ability to generate economic benefits by using an asset in a way that is physically possible, legally permissible, and financially feasible, as discussed in FV 1.5.

  Example NP 7-5 is derived from ASU 2020-07 and includes an example in tabular form of disclosures that would meet the requirements of ASC 958-605-50-1A.