Noncash Contributions

Not-for-profit organizations generally receive contributions; these contributions may be cash or noncash. Although the receipt and recognition of cash contributions is relatively straightforward and readily understood, the recognition of noncash contributions is not. FASB ASC 958 (formerly SFAS No. 116) clarifies the circumstances for recognition of noncash contributions, such as a person’s time or other assets, in the nonprofit’s financial statements.

Noncash contributions may take many forms. These include, but are not limited to: donated personal services, such as legal advice; tangible services, such as advertising; facilities usage, such as a below-market lease; supplies, such as paper; and long-term assets, such as a copier. When a noncash contribution is received, the organization should immediately ask itself the following question: can the donated item or service be used internally to support the organizations programs or can the item be sold for cash? If the answer to either of these questions is “yes,” then the organization should evaluate the transaction further for consideration of its inclusion in the financial statements. The evaluation process is different for contributions of goods, services, and works of art:

Goods

If donated goods can be used internally for support of an organizational program or sold for cash, the contribution should be recognized in the financial statements. Generally, contributed goods are measured at their fair market value as of the date of the gift. If the contributed good is a long-lived asset, the goods should be valued at their fair market value as of the date of the gift, capitalized, and depreciated over the course of the item’s useful life. For goods that are to be used within the fiscal year, the organization should record contribution revenue equal to the fair market value of the goods as of the date of the gift and an equivalent expense, such as supplies expense.

Services

Nonprofit organizations often receive substantial donations of volunteer services. For inclusion in the financial statements, donated services must meet one of the following two criteria: 1) the services must create or enhance a nonfinancial asset or 2) the services require specialized skills, are provided by entities or persons possessing those skills, and would have to be purchased if they were not donated. Volunteers building a house for an organization, such as Habitat for Humanity, would qualify for the former and donated legal services by a law firm for the latter. However, a lawyer, who volunteers his time to collect tickets at a fundraising event would not satisfy either criteria, and therefore, would not qualify for recognition in the financial statements.

Works of Art/Historical Treasures

An organization is not required to recognize donations of works of art or historical treasures that are to be added to the organizations permanent collection. However, the election to forgo recognition in the financial statements requires the organization 1) to maintain the donated piece(s) for public exhibition, education or research in furtherance of public benefit; 2) to protect, care for and preserve the donated piece(s); and 3) to require the proceeds from any future sales of the piece(s) to be used to acquire other items for the collection.