Accounting for Non-Monetary Gifts (#366)
/The topic of this episode comes from a listener, and it is, I am a church treasurer and receive donations of non-monetary gifts. How do I account for them, and how do I determine their fair value?
Accounting for Non-Monetary Gifts
I talked about some of this back in episode 303, but that was a more wide-ranging discussion about nonprofits in general. Let’s get very precise on this one. We’re not talking about a cash donation, which is what happens most of the time. Instead, this is everything else. The basic rule is that you recognize revenue at the fair value of the donated item.
You could go into a lot of research on this, dig around among a lot of sources, and decide on a fair market value that balances the condition of the asset against maybe three or four prices that you found on the Internet. Yes, you could do that. But let’s be realistic. A lot of people involved with the accounting for a nonprofit are volunteers, which means that they don’t have time for all that crap. They just want a number that they can record.
Accounting Policy for Non-Monetary Gifts
In this case, what you really need is a standard accounting policy that specifies your fair value source. You go in, you get the price you need, and you recognize the revenue. That’s it. For example, the policy says that if someone donates a car, then you go to the Kelley Blue Book website, plug in the make and model and mileage, and use the first price that you see.
Or, if someone has donated a Tiffany lamp, then the policy says that you should go into eBay, find it, and recognize revenue based on a quick search of whatever seems closest to what got donated.
And on top of that, what if someone donates an item that’s obviously not very expensive? Maybe it’s some second-hand clothes, or a toaster oven. Not a problem, just don’t recognize any revenue at all. To cover yourself, have an accounting policy that sets a threshold. If a donated item falls below your best guess at a value of, let’s call it $500, then there’s no record keeping at all.
Or, if you’re uncomfortable with not recognizing any revenue, then set a policy to recognize some piddly amount for small donations. For example, a bag of used clothes has a standard value of $10. Or any used appliance has a value of $25. And you’re done.
The point here is to keep it short and simple. Sure, you won’t necessarily get a fair value that’s absolutely precise, but does that really matter? If you’re the volunteer accountant for a nonprofit – probably like the listener who sent in this question – then don’t waste your time.
Now, that being said, you should absolutely document your sources, which means printing out a screen shot of whatever web page you got the pricing information from. Then stick it in a binder, sorted by month. Done.
Accounting for Real Estate Donations
My advice so far should cover the bulk of the scenarios that a nonprofit might run into. But there are some scenarios that are more difficult. One is definitely real estate donations. These are one-of-a-kind donations, because values change based on the applicable zoning, and exactly where the land is located, and whether there’s easy road access, and on and on.
In these cases, your best bet is to find a realtor with expertise in that area, and get an appraisal from that person. And ask for documentation. The realtor should be able to provide you with a listing of comparables in the area with similar features, and a reconciliation that gives you a fair value that you can document. And this information will probably be free, as long as you give that realtor the contract to sell the property.
Accounting for Stock Donations
Here's another donation that can be difficult – stock. Someone might gift you their shares in a corporation. If those shares are publicly traded, then value the shares at the price at which they were trading on the day when you received the shares. That part is easy enough, but what if the shares are in a privately-held company? There is no market, so there is no obvious share price. What can you do then?
One option is to ask the donors what valuation they used when they donated the shares. After all, they must have some sort of justifiable number that they’re going to use for a tax deduction. So, ask for a copy.
If that doesn’t work, and the shares appear to be worth a lot of money, then this is a rare case in which you really might want to hire an appraiser. After all, if your nonprofit is about to score a six- or seven-figure donation, you’d might as well get it right.