How do NFP entities account for donated assets?

NFPs may receive donated assets which will be retained for ongoing use by the organisation.

Difficulties exist in valuing and recognising these assets within NFP financial statements.

The section focuses on:

  • Which donated assets are recognised by entities?

  • How are they recognised?

  • What measurement basis is used and what guidance is provided?

  • What narrative disclosures are required?

Whilst the section focuses on donation of assets, it does not specifically cover the accounting around heritage items/assets, intangible assets or assets acquired for consideration below the market value but which is more than nominal.


Language

It is noted that the sections uses ‘fixed asset’, rather than ‘Property, Plant and Equipment’ or ‘Tangible Capital asset’ throughout.

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Australia

Which donated assets are recognised by entities?

Donated assets qualify for recognition where it is probable that future economic benefits will flow to the entity and the cost of the item can be measured reliably.


How are they recognised?

Capitalised as a fixed asset with the corresponding gain recognised as donation income.


What measurement basis is used and what guidance is provided?

Cost, being the fair value at the date of acquisition.


What narrative disclosures are required?

Entities must disclose information to allow users to understand the effects of these donations.

Entities are recommended to disclose ‘grants, bequests and donations of cash, other financial assets and goods’ as a separate category of income.


ACCOUNTING ENTRIES

On donation (initial recognition at Fair Value):

DR Property, Plant and Equipment

CR Income (grants, bequests and donations of cash, other financial assets and goods)


RELEVANT SECTION OF ACCOUNTING STANDARDS/GUIDANCE

AASB 1058 Income of Not-for-Profit Entities, Paragraphs 9 and 23-26

AASB 116 Property, Plant and Equipment, Paragraphs 15-15.3


ILLUSTRATIVE EXAMPLE

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Canada

Private Sector NFPOs

Which donated assets are recognised by entities?

Donated capital assets are recognised.


How are they recognised?

Capitalised as a fixed asset with the corresponding gain recognised as a contribution.


What measurement basis is used and what guidance is provided?

Fair value at the date of contribution. This may be estimated using market or appraisal values. Where fair value cannot be reasonably determined, the asset is measured at nominal value.


What narrative disclosures are required?

Entities must disclose the nature and amount of contributed tangible capital assets received in the period and recognised in the financial statements. Entities must also disclose information about contributed tangible capital assets recognised at nominal value.


ACCOUNTING ENTRIES

On donation (initial recognition at Fair Value):

DR Fixed Asset

CR Income (Contributions)


RELEVANT SECTION OF ACCOUNTING STANDARDS/GUIDANCE

CPA Canada Handbook – Accounting (Part III), Section 4431 tangible capital assets held by not-for-profit organizations, Paragraphs, 7, 10 and 35-37

CPA Canada Handbook – Accounting (Part III), Section 4432 intangible assets held by not-for-profit organizations, Paragraphs 9-12


ILLUSTRATIVE EXAMPLE

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Colombia

Which donated assets are recognised by entities?

Donated assets are recognised as non-monetary grants.

An asset will not be recognised until there is reasonable assurance that: the entity will comply the condition attached with the donation of the asset, and the donated asset will be received.


How are they recognised?

Donated assets are recognised as a non-monetary grants. Both the grant and asset are recognised at the same value. The grant is recorded as deferred income, which is then recognised in profit or loss on a systematic basis over the useful life of the donated asset, if the entity has conditions to be fulfilled. Otherwise, it treats the item as an income or gain.


What measurement basis is used and what guidance is provided?

Fair value. An alternative course can be followed where both the asset and grant are recorded at a nominal amount.


What narrative disclosures are required?

An entity must disclose the accounting policy adopted, including the nature and extent of non-monetary grant.


ACCOUNTING ENTRIES

On donation (initial recognition at Fair Value):

DR Fixed Assets

CR Deferred Income (income or gain)


Over the useful life of the donated asset:

1.  DR Deferred Income

CR Income


2.  
DR Depreciation expense

CR Accumulated depreciation


RELEVANT SECTION OF ACCOUNTING STANDARDS/GUIDANCE

IAS 20 Accounting for Government Grants and Disclosure of Government Assistance, Paragraphs 23 to 28 and 39


ILLUSTRATIVE EXAMPLE

A NFP receives an equipment element with the condition of use it for specific productions process for a period of 4 years. So, the entity must carry an asset at its fair value against deferred income, amortising it under a straight line basis over 4 years.

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New Zealand

Tier 1 and Tier 2 PBE Standards

Which donated assets are recognised by entities?

Donated assets are recognised where it is probable that the future economic benefits or service potential will flow to the entity and the fair value of the assets can be measured reliably.


How are they recognised?

Capitalised as a fixed asset on receipt or where there is a binding arrangement to receive the goods, with the corresponding gain recognised as non-exchange revenue


What measurement basis is used and what guidance is provided?

Fair value as at the date of acquisition.

Fair value may be ascertained by reference to an active market or by appraisal.


What narrative disclosures are required?

Entities must disclose the:

  • Accounting policies adopted for the recognition of revenue from non-exchange transactions;
  • For major classes of revenue from non-exchange transactions, the basis on which the fair value of inflowing resources was measured;
  • The nature and type of major classes of bequests, gifts, and donations, showing separately major classes of goods in-kind received.


ACCOUNTING ENTRIES

On donation (initial recognition at Fair Value):

DR Property, Plant and Equipment

CR Income (non-exchange revenue)


RELEVANT SECTION OF ACCOUNTING STANDARDS/GUIDANCE

PBE IPSAS Revenue from Non-Exchange Transactions, Paragraphs 97, 107, 111 and B18-B18.1


ILLUSTRATIVE EXAMPLE

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Tier 3 Simple Format Reporting Standard – Accrual (NFP)

Which donated assets are recognised by entities?

Donated assets are recognised where the donated asset is significant and has a useful life of 12 months or more.

However, assets which are difficult to value (for example intangible assets, highly specialised assets, and heritage assets) should not be recognised.


How are they recognised?

Capitalised as a fixed asset on receipt, with the corresponding gain recognised as donation revenue.


What measurement basis is used and what guidance is provided?

Measured at a readily obtainable current value on receipt – such as a rateable or government valuation.


What narrative disclosures are required?

Entities must disclosure the source and date of the valuation of those donated assets which have been recognised.

Entities must disclosure a description of those assets (categorised by class where appropriate) which are significant but have not been recognised.


ACCOUNTING ENTRIES

On donation (initial recognition at Fair Value):

DR Property, Plant and Equipment

CR Income (Donations)


RELEVANT SECTION OF ACCOUNTING STANDARDS/GUIDANCE

Public Benefit Entity Simple Format Reporting – Accrual (Not-for-profit), Paragraphs A62, A111-A112 and A190–A192


ILLUSTRATIVE EXAMPLE

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United Kingdom

Which donated assets are recognised by entities?

Donated assets which will be held by the entity for on-going use in carrying out its activities.


How are they recognised?

Capitalised as a fixed asset with the corresponding gain recognised as donation income.


What measurement basis is used and what guidance is provided?

Fair value on receipt, unless it is impractical to measure reliably the fair value of the assets.

Where there is no direct evidence of fair value for an equivalent item, a value may be derived from the cost of the item to the donor.


What narrative disclosures are required?

Entities must disclose:

  • the accounting policy for the recognition and valuation;
  • the nature and amounts of donated goods recognised;
  • any unfulfilled conditions or other contingencies attaching to resources from non-exchange transactions that have not been recognised; and
  • an indication of other forms of resources from non-exchange transactions which the entity has benefitted but not recognised in its accounts.


ACCOUNTING ENTRIES

On donation (initial recognition at Fair Value):

DR Fixed asset

CR Income (Income from donations and legacies)


RELEVANT SECTION OF ACCOUNTING STANDARDS/GUIDANCE

Charities SORP (FRS 102), Paragraphs 6.20 to 6.22

FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland, Paragraph PBE34.67-PBE34.73 and Appendix B to Section 34


ILLUSTRATIVE EXAMPLE

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USA

Which donated assets are recognised by entities?

Donated assets are recognised where these assets will be used internally by the entity.


How are they recognised?

Capitalised as a fixed asset on receipt, with the corresponding gain recognised as a contribution.

The contribution will be classified depending on whether the asset will be part of the entity’s ongoing major or central activities (revenues), or is peripheral or incidental to the entity (gains).

Where the donor has not stipulated about how long the donated assets must be used, the contribution must be reported as ‘unrestricted’ support. However, where the entity has a policy to imply a time restriction that expires over the useful life of donated assets, the contribution must be reported as ‘restricted’ support and the restriction expires over the useful like of the asset.

However, treatment differs where the donated asset is a work of art, historical treasure and similar assets that is added to collections where the entity does not capitalised its collections. In these instances the entity will not recognise the asset.


What measurement basis is used and what guidance is provided?

Fair value on receipt.


What narrative disclosures are required?

No specific narrative disclosure required or recommended.


ACCOUNTING ENTRIES

On donation (initial recognition at Fair Value):

DR Fixed asset

CR Income (Contribution)


RELEVANT SECTION OF ACCOUNTING STANDARDS/GUIDANCE

FASB Accounting Standards Codification, ASC 958-605-25-2, ASC 958-605-30-2 and ASC 958-605-45-6


ILLUSTRATIVE EXAMPLE

FASB Accounting Standards Codification, ASC 958-605-55 (Examples 1-3, Paragraphs 32-41)

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