What is a Nonreciprocal Transfer?

A nonreciprocal transfer occurs when an asset is given to a third party with no expectation of payment in exchange. This usually involves a charitable donation to a nonprofit entity. Nonreciprocal transfers also occur between countries, where advanced economies issue grants or other types of assistance to developing countries, without any expectation of being paid back. For example, a number of wealthier countries routinely make payments to Malawi, since it is one of the poorest countries in the world and therefore perpetually in need of aid.

There can be some non-financial benefits for donors when nonreciprocal transfers take place. For example, a country that issues grants might expect some support from the receiving government in regard to certain international initiatives, or favorable votes in the United Nations.

Accounting for a Nonreciprocal Transfer

A nonreciprocal transfer is typically accounted for as a contribution. The recipient of this transfer records the received asset at its fair value on the transfer date. The initiator of the transfer records the asset disposition at its fair value, which may result in the recognition of a gain or loss. There are several variations on the concept, which are noted below.

Donor Contributions

This is a payment made by a third party, where the third party does not expect to receive any compensation in exchange for the payment. A donor contribution may be unrestricted or restricted. The payment may be in cash, or in the form of some other asset, or by paying off a liability owed by a nonprofit. Contributions received that have donor-imposed restrictions are reported as donor-restricted support that increases net assets with donor restrictions. When contributions have no donor-imposed restrictions, they are reported as support that increases net assets without donor restrictions. Donor-restricted contributions for which the conditions are met in the same reporting period can be reported as support within net assets without donor restrictions.

Stock Donations

Donors may contribute some portion of their stock holdings to nonprofits in order to take a tax deduction on the fair value of the stock. When this happens, the nonprofit records the value of the stock received at its fair value on the date of receipt. See the Investment Accounting chapter for more information.

In-Kind Service Donations

Volunteers routinely donate large amounts of their time to the operations of a nonprofit. A nonprofit can record the value of their time using a reasonable valuation, but only if both of the following conditions are met:

The services create or enhance non-financial assets; and
The services require specialized skills, are provided by persons with those skills, and would otherwise need to be purchased.

If these conditions are met, the nonprofit recognizes the value of the services as both revenue and an expense, so that the net effect on the statement of activities is zero. The accounting is somewhat different if a fixed asset is involved; see the Fixed Asset Accounting chapter for more information.

In-Kind Materials Donations

A donor may contribute assets other than cash. For example, foodstuffs or used cars may be donated. These donations are to be recorded at their fair values. The fair value of any inventory items contributed can be derived from published catalogs, vendors, appraisers, and so forth. The amount of effort that goes into the determination of fair value will likely depend on the extent of the donation; for example, a nonprofit is more likely to engage the services of an appraiser if a facility is donated than if a bag of used clothes is received.