Nonprofit & Government Times Q1 2020

A Guide to Proper Reporting and Valuation of In-Kind Contributions JOSEPH KANJAMALA, CPA, CGMA PARTNER, NONPROFIT, GOVERNMENT & HEALTHCARE GROUP

BACKGROUND I n addition to financial contributions, in-kind contributions. These donations could be in the form of a contributed service, such as free legal service, or gifts-in-kind such as a piece of furniture or pharmaceuticals. The gifts-in-kind could be tangible, as in pharma- ceuticals, or intangible, such as a guarantee or below-market interest rate. not-for-profits (NFPs) frequently receive donations of goods and services, or

need to record them on an NFP’s financial statements. Stakeholders may argue that recording these items will merely gross up revenue and expenses with no effect on the operating results. However, not recording these items can distort an NFP’s financial statements, understating the organization’s revenue and expenses, and does not allow for true comparison between similar organizations. As such, NFPs are required to report these contributions. U.S. generally accepted accounting principles (US GAAP) require an NFP to report the fair value of the in-kind contribution on its financials on the date when the contribution is made known to the NFP, irrespec- tive of the actual date of receipt. To be recognized as a contribution, the goods or service must create or enhance a nonfinancial asset and/or require a

There is a common misconception among stakeholders that because in-kind contributions are free, there is no

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