Are NFP entities required to account for donations of non-monetary assets for resale?

The sale of donated goods is a commonly used by NFPs to raise income. ‘Charity Shops’, ‘Thrift Stores’, ‘Opportunity Shops’ or ‘Used-goods Stores’ are established as outlets where these donated items are sold.

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

The section focuses on:

  • When the recognition of donations of non-monetary assets for resale is required?

  • What measurement basis is to measure these assets?

  • What narrative disclosures are required?


Language

It is noted that this sections uses ‘stock’, rather than ‘inventory’ throughout.


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Australia

Is recognition required?

Recognition is required. Goods donated for resale must be initially recognised as income on receipt. However, the entity may choose not to recognise the goods if they are not individually material to the entity’s financial statements as a whole.


What measurement basis is used?

Current replacement cost - the cost the entity would incur to acquire the asset at the end of the reporting period


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.

Entities are recommended to disclosure narrative information about the entity’s dependence arising from goods held but not recognised as stock.


ACCOUNTING ENTRIES

On donation (initial recognition at Current Replacement Cost):

DR Stock

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


On subsequent resale:

1. Using the initial carrying amount:

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

2. Using the proceeds of sale:

DR Cash

CR Income (Sales Revenue)


RELEVANT SECTION OF ACCOUNTING STANDARDS/GUIDANCE

AASB 1058 Income of Not-for-Profit Entities, Paragraphs 8, 9, 26 and 27

AASB 102 Inventories, Paragraph Aus10.1-Aus10.2


ILLUSTRATIVE EXAMPLE

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Canada

Private Sector NFPO

Is recognition required?

Recognition is optional where the fair value of the goods donated can be reasonably estimated and the goods are used in the normal course of the organisation’s operations and would have otherwise been purchased.


What measurement basis is used?

Fair value at the date of contribution - determined in relation to the purchase of similar materials.


What narrative disclosures are required?

Entities are required to disclose the nature and amount of those goods recognised.


ACCOUNTING ENTRIES

On donation (initial recognition at Fair Value):

DR Stock

CR Income (Revenue, Charitable donations)


On subsequent resale:

1. Using the initial carrying amount:

DR Income (Revenue, Charitable donations)
CR Stock

2. Using the proceeds of sale:

DR Cash

CR Income (Sales Revenue)


RELEVANT SECTION OF ACCOUNTING STANDARDS/GUIDANCE

CPA Canada Handbook – Accounting (Part III), Section 4410 contributions — revenue recognition, Paragraphs 16-18, 20 and 24


ILLUSTRATIVE EXAMPLE

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Colombia

Is recognition required?

No specific treatment exists for goods donated for resale.

Donated goods are required to be recognised as revenues or gains depending on the form of the benefits received. However, there is no specific treatment specified for goods donates for resale.


What measurement basis is used?

Fair value.


What narrative disclosures are required?

No specific disclosures.


ACCOUNTING ENTRIES

DR Asset

CR Revenues or Gains


RELEVANT SECTION OF ACCOUNTING STANDARDS/GUIDANCE

Financial Accounting Standards Board, Statement of Financial Accounting Standards No. 116, Accounting for Contributions Received and Contributions Made, Paragraphs 8 and 19

General recognition conditions and disclosure requirements of IFRS or IFRS for SME


ILLUSTRATIVE EXAMPLE

If a NFP receives a vehicle under a reselling condition and it is to be resold by the NFP, it would carry that item depending on the technical framework being followed. Depending on the nature of the asset and if the NFP applies full IFRS or IFRS for SME, it would be recognised as either inventory or a non-current asset available for sale.

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New Zealand

Tier 1 and Tier 2 PBE Standards

Is recognition required?

Recognition is required. Goods donated for resale must be initially recognised as income on receipt.

However, the entity may choose not to recognise the goods if it is not practicable to measure reliably the fair value of those goods at the date of acquisition because the costs of recognising the goods at the date of acquisition outweigh the benefits.


What measurement basis is used?

Fair value at the date of acquisition - which 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 Stock

CR Income (Non-exchange Revenue)


On subsequent resale:

1. Using the initial carrying amount:

DR Income (Non-exchange Revenue)
CR Stock

2. Using the proceeds of sale:

DR Cash

CR Income (Sales Revenue)


RELEVANT SECTION OF ACCOUNTING STANDARDS/GUIDANCE

PBE IPSAS 23 Revenue from Non-Exchange Transactions, Paragraphs 42-43, 93-97.1. 107 and BC7-BC10


ILLUSTRATIVE EXAMPLE

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Tier 3 Simple Format Reporting Standard – Accrual (NFP)

Is recognition required?

Recognition is optional. Entities may initially recognised goods donated for resale as income on receipt.


What measurement basis is used?

Fair value at the date of acquisition.


What narrative disclosures are required?

Entities must disclose information about significant goods received in kind in the notes to the performance report.

This can include a monetary quantification of the donated goods.


ACCOUNTING ENTRIES

On donation (initial recognition at Fair Value):

DR Stock

CR Income (Non-exchange Revenue)


On subsequent resale:

1. Using the initial carrying amount:

DR Income (Non-exchange Revenue)
CR Stock

2. Using the proceeds of sale:

DR Cash

CR Income (Sales Revenue)


RELEVANT SECTION OF ACCOUNTING STANDARDS/GUIDANCE

Public Benefit Entity Simple Format Reporting – Accrual (Not-for-profit), Paragraphs A37(f), A43(a)(iv), A68 and A189


ILLUSTRATIVE EXAMPLE

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United Kingdom

When is recognition required?

Recognition is required. Goods donated for resale must be initially recognised as income on receipt.

However, the goods may be recognised as income when sold where the costs of valuation outweigh the benefit to users of the accounts and the charity of this information, or estimating the fair value is impractical because of:

  • The volume of low-value items received; or
  • The absence of detailed stock control systems or records.


What measurement basis is used?

Fair value - Expected proceeds from sale less the expected costs of sale.


What narrative disclosures are required?

Entities must disclose:

  • the accounting policy for the recognition and valuation; and
  • the nature and amounts of donated goods recognised.


ACCOUNTING ENTRIES

On donation (initial recognition at Fair Value):

DR Stock

CR Income (Income from other trading activities)


On subsequent resale:

Reflecting the proceeds of sale:

DR Cash
CR Stock

(With any difference between the proceeds of sale received and expected income taken to 'Income from other trading activities')

RELEVANT SECTION OF ACCOUNTING STANDARDS/GUIDANCE

FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland, Paragraphs PBE34.64-PBE34.74 and Appendix B to Section 34 (specifically Paragraphs PBE34.3-PBE34B.4)

Charities SORP (FRS 102), Paragraphs 6.27-6.30


ILLUSTRATIVE EXAMPLE

Model Trustees’ Annual Report and Accounts: Arts Theatre Trust (FRS 102 version), Page 20, Note 1(m)

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USA

When is recognition required?

Recognition is required. Goods donated for resale must be initially recognised as income on receipt if they can be sold.


What measurement basis is used?

Fair value.

Using the following techniques to measure the fair value of inventory is considered appropriate where they:

  • reduce the costs of measuring the fair value;
  • can be applied consistently; and
  • the results are reasonably expected not to be materially different from the results of a detailed measurement:

    • Estimates;
    • Averages;
    • Computational approximations (such as average value per pounds or subsequent sales).


What narrative disclosures are required?

No specific narrative disclosures are required or recommended.


ACCOUNTING ENTRIES

On donation (initial recognition at Fair Value):

DR Stock

CR Income (Contributions Received)


On subsequent resale:

1. Using the initial carrying amount:

DR Income (Contributions Received)
CR Stock

2. Using the proceeds of sale:

DR Cash

CR Income (Contributions Received)


RELEVANT SECTION OF ACCOUNTING STANDARDS/GUIDANCE

FASB Accounting Standards Codification, ASC 958-605-30-9 and ASC 958-605-30-11


ILLUSTRATIVE EXAMPLE

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