Nonprofit & Government Times Q1 2020

Fair value is a market-based measurement and not an entity-specific measurement.

specialized skill that the contributor has and would typically need to be purchased if not provided through contribution. However, even if these criteria are met, if the goods or services are not in a condition that allows for their use when they are received, if they are for the benefit of another organization, or if in an agency transaction it is difficult to determine their value, then the revenue and expenses recognition could be inappropriate. The value of the in-kind contribution is recorded as a contribution in the operating revenue and support section of the statement of activities and as an expense in the statement of functional expenses as a natural expense line item. If the in-kind contribution is a capitalizable item, such as real estate, then an asset account is recorded instead of expenses. In no instances can the contribution offset the expense or assets. If the donor restricts the in-kind contribution, then it should be recorded as a donor-restricted contribution.

requires an NFP to value in-kind contributions at fair value. FASB ASC 820 defines fair value and establishes a framework for measurement of fair value. The fair value measurement assumes that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability or, in the absence of a principal market, the most advanta- geous market for the asset or liability. Fair value is defined by Topic 820, Fair Value Measure- ment, as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transac- tion between market participants at the measurement date.” Fair value is a market-based measurement and not an entity-specific measurement. The purpose of fair value measurement is to estimate the price, which requires assumptions (including assumptions about risk) that market participants would use. The various techniques used for fair value measurement are market, cost and income approaches. Items such as in-kind contributions tend to follow the market approach for valuation, though there are exceptions.

Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 958-605

markspaneth.com FIRST QUARTER, 2020 Nonprofit & Government Times 14

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