Gifts-In-Kind Valuation

Posted on December 1, 2008 | 2 comments

Several questions from my trainings have been about non-cash donations and how to value them. The PPC Guide to Contributions has the best guidance out there on the subject and I still highly recommend them, a worthy investment for your nonprofits financial well being.

How do we value food donations for our “Taste Of…” event?

Fair value must be determined. According to SFAS 157, Fair Value Measurements, the fair value is, “the price that would be received to sell an asset or paid transfer of liability in an orderly transaction between market participants at the measurement date. The quoted price for identical assets in an active market is the most reliable evidence.”

For this question, if a restaurant is providing you with 300 deserts, what do they sell the deserts for? If they are catering at your event, what do they normally charge for catering? Those quoted prices (or better yet and invoice) would be what you would use to value the donations.

Can the suggested starting bid on an item to be sold at auction be used as the fair value?

Yes, with exceptions. If a vendor gives you something to auction for your charity event and places a “suggested starting bid” sticker on it, that can be used. But if you have sold similar items before and what they suggest doesn’t match what you have used in the past that suggestion won’t work. Checking other resources on how the item might be valued would also be a good idea.

We have a golf tournament where everything is donated. Donors then buy tickets for the event. Is the whole ticket deductible to the those donors?

From what I can tell it is not. The non-deductible portion of the ticket represents the estimated fair market value of the goods or services received by the donor in return for the contribution. How much would the donor normally have had to pay to play golf at the location? The fact that the nonprofit did not incur any costs for the facility is irrelevant to the benefit received by the donor.

What are some resources for valuing donations?

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SAS 61, 112 and 114

Posted on December 1, 2008 | 1 comment

Statement of Accounting Standards 112

SAS 112 goes into effect / becomes effective for periods ending on or after 12-15-06. I have mentioned in recent trainings that auditors will soon be looking more closely at your internal controls. With this new standard they are now obliged to report any deficiencies to your board and in the auditor’s report. From the document linked to below:

Requires the auditor to communicate control deficiencies that are significant deficiencies or material weaknesses in internal control.

A significant deficiency is a control, or combination of control deficiencies, that adversely affects the entity’s ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entity’s financial statements that is more than inconsequential will not be prevented or detected.

A material weakness is a significant deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected.

Here is a PDF of that tells more about it.

Statement of Accounting Standards 114

SAS No. 114, The Auditor’s Communication With Those Charged With Governance, was recently issued by the ASB. The new SAS supersedes SAS No. 61, Communication with Audit Committees, and is effective for audits of financial statements for periods beginning on or after December 15, 2006 (generally, 2007 calendar year-end audits.)

The new SAS establishes standards for the matters required to be communicated by the auditor, the form and timing of that communication, and to whom the matters should be communicated. These new standards apply to all entities regardless of size, ownership, or organizational structure.

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Donation Transactions

Posted on December 1, 2008 | 5 comments

There have been questions at my trainings on the specific journal entries for donations to be auctioned off or re-sold. From the great PPC Guides, I recommend them to any nonprofit finance professional, an excerpt:

“Organizations may receive contributions of gifts-in-kind to be used for fund-raising purposes. A common example is where an organization receives tickets, gift certificates, or merchandise from donors to be sold to others during an auction. An organization should recognize the donated item to be used for fund-raising purposes as a contribution and record it at its estimated fair value. When the item is subsequently sold (such as at auction), any difference between the item’s initially estimated fair value and the amount ultimately received should be recognized as an adjustment to the original contribution amount.

For all practical purposes, the initial estimation may not be that important – the eventual contribution amount that is recognized will be what someone was willing to pay for the donated item. Organizations should use their best estimates when initially valuing the donated items and adjust the amounts later when the actual auction takes place. As a practical matter, the time period between the donation of items for an auction and the actual auction may be short. Accordingly, some organizations may wait to record the items until they are actually sold. That would not be appropriate, however, if the items were received before year-end and the auction was held after year-end.

Example: An organization is given a piece of jewelry valued at $3,000 to be auctioned off to the highest bidder at the organization’s annual fund-raiser. The journal entry to record the initial gift-in-kind contribution is as follows:

Debit – Asset $ 3,000

Credit – Contribution revenue $ 3,000

At the fund-raiser, an individual purchases the jewelry for $5,000. The journal entry to adjust for the sale is as follows:

Debit – Cash $ 5,000

Credit – Asset $ 3,000
Credit – Contribution revenue $2,000

If the jewelry sold at auction for only $1,000, the journal entry to record the sale would then be as follows:

Debit – Cash $ 1,000
Debit – Contribution revenue $2,000

Credit – Asset $ 3,000

Hope that helps! And you should check out PPC’s guide to Expenses as well.

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