Not-for-profit (NFP) entities are required to record donations of contributed nonfinancial assets and unconditional promises to give noncash assets at their fair value. Contributed nonfinancial assets are commonly referred to as noncash contributions or gifts-in-kind (GIK). Contributed nonfinancial assets include tangible personal property, such as materials and supplies, donated items sold for fundraising purposes, vehicles, inventory and more. Examples also include land, buildings, free or below market use of facilities, utilities, intangible assets, collection items, advertising or other services.
Recording contributed nonfinancial assets
It is important to note that contributed services are only recorded if they meet at least one of two criteria. Contributed services need to 1) create or enhance nonfinancial assets (most commonly, land and buildings), and/or 2) require specialized skills, be provided by individuals possessing those skills, and would typically need to be purchased if not donated.
Requirements to disclose the nature and extent of contributed services apply regardless of whether the services received are recognized as revenue in the organization’s financial statements. The nature and extent can be disclosed using nonmonetary information, such as volunteer hours. However, amounts recognized will also have monetary disclosure requirements, as further described below.
Determining the fair value of noncash contributions
The fair value of noncash contributions is determined under FASB Accounting Standards Codification 820, Fair Value Measurement. Challenges may exist in determining fair value, particularly for pharmaceuticals sourced in foreign countries or items that do not actively trade in markets that publish pricing information. It is important for NFPs to evaluate the valuation techniques and inputs it uses, since under ASU No. 2020-07, organizations must now disclose a description of such in determining the fair value of its contributed nonfinancial assets.
Provisions under the standard
The main provisions of ASU No. 2020-07, as stated by the standards, are to:
1. Present contributed nonfinancial assets as a separate line item in the statement of activities, apart from contributions of cash and other financial assets.
a. A disaggregation of the amount of contributed nonfinancial assets recognized within the statement of activities by category that depicts the type of contributed nonfinancial assets.
b. For each category of contributed nonfinancial assets recognized (identified above):
i. Qualitative information about whether the contributed nonfinancial assets were either monetized or utilized during the reporting period. If utilized, an NFP will disclose a description of the programs or other activities in which those assets were used.
ii. The NFP’s policy (if any) about monetizing rather than utilizing contributed nonfinancial assets.
iii. A description of any donor-imposed restrictions associated with the contributed nonfinancial assets.
iv. A description of the valuation techniques and inputs used to arrive at a fair value measure, in accordance with the requirements in Topic 820, Fair Value Measurement, at initial recognition.
v. 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.
To aid in implementation of the standard, NFP entities may wish to create separate general ledger account numbers to track contributed nonfinancial assets. This is beneficial when noncash contributions are commingled with cash contributions. As noted above, the standard requires disclosure of the types of contributed nonfinancial assets, but the categories are not predefined. This provides some flexibility in categories used in reporting. To facilitate reporting by category, it may be helpful to further disaggregate contribution revenue into separate general ledger accounts by types of in-kind contributions (goods, services, use of facilities, etc.). Likewise, donor restrictions associated with contributed nonfinancial assets could be tracked through the general ledger to facilitate reporting.
As a best practice, NFPs may also want to establish a written gift acceptance policy and procedures to determine whether noncash contributions received meet requirements for recognition and the techniques or sources used to value the various types of GIK. In circumstances where donor-imposed restrictions limit the market in which noncash contributions may be sold or used, entities can review FASB Accounting Standards Codification Subtopic 958-605 prior to drafting the qualitative disclosures. The definitions of “most advantageous market” and “principal market” have been added to the Subtopic 958-605 Master Glossary for reference.
Preparing to adopt the standards
ASU No. 2020-07 is effective for annual periods beginning after June 15, 2021 and interim periods within annual periods beginning after June 15, 2022. Organizations are able to adopt the standard early. If presenting comparative financial statements, an NFP should present the separate presentation of contributed nonfinancial assets in the statement of activities and the related disclosures for all periods presented. NFPs wishing to present comparative financial statements may need to go back to prior periods to make reclassifications or accumulate information for prior period reporting comparisons through a spreadsheet or other means.
Sample footnote disclosures are presented within ASU No. 2020-07, which can be obtained through the FASB’s website. In addition, members of the AICPA Not-for-Profit Section website can access additional disclosure examples here.
For more information or assistance with implementing the standard, please talk to our team of NFP experts.