Nonprofit & Government Times Q1 2020

RECORDING AND VALUATION OF COMMON IN-KIND CONTRIBUTION ITEMS

Labor Statistics and/or private organizations such as Independent Sector. • Board Member Services When Board members of an NFP contribute their time to its governance and mission, such services are valuable but do not need to be recorded as an in-kind contribution. However, Board members frequently have highly specialized professional skills and may use these skills for projects that would normally be considered outside the scope of normal Board duties. For example, a Board member who is an attorney is engaged, pro bono, to defend the NFP in a lawsuit. The time spent by this Board member is a contributed professional service, and thus the fair value must be recorded as a contribution. • Contribution of Land and Buildings or Other Fixed Assets When the legal titles to land and buildings or other fixed assets are transferred to an NFP, the NFP records the fair market value of the asset with a corresponding credit to contribution without donor adoption of ASU No. 2016-14, NFPs had a choice to record the in-kind contribution of land and buildings and other fixed assets as contributions with donor restrictions and then release the donor-restricted net assets over the years when the asset was depreciated. With the adoption of ASU 2016-14, in the absence of explicit donor restrictions, NFPs would be required to use the “placed in service” approach and can no longer imply a time restriction and release it over the life of the fixed assets.) • Clothing The fair market value of donated clothing is estimated based on the cost incurred to bring the clothing to a saleable condition. An NFP may incur costs to main- tain donation bins, transport the donated clothing to a central warehouse for sorting, cleaning, folding and packing, transporting the clothing to a thrift store for sale, the salary and related costs of the people involved in preparing the clothing for sale, etc. Such costs are used to arrive at the fair value of the donated clothing inventory. • Donated Pharmaceuticals NFPs that receive and report donated pharmaceu- ticals are highly monitored by the Internal Revenue Service, the attorneys general of various states and other regulatory bodies. The fair value of donated restriction. The fair market value is estimated through an appraisal of the asset. (Before the

• Donated Auction Item When an NFP receives an item to be sold at a gala or an auction, the NFP must record that contribution at fair value on the date on which the contribution is made known to the NFP. Later, if the item is sold at the auction at a price different from the fair value, then the NFP must recognize an adjustment to the original contribution amount recorded. • Public Service Announcement (PSA) Often, an NFP receives free airtime, media space or advertising on a television network, radio station, newspaper or website—commonly referred to as a public service announcement (PSA). PSAs provide future economic benefits to an NFP in the form of potential contributions, membership fees, promotion of the NFP’s mission, etc. Therefore, the fair market value of the PSA must be estimated and recorded in the NFP’s financial statements. The provider of the PSA can give a detailed listing of the PSA with the price-per-minute, which can be used for estimating the fair value. • Free Usage of Space When an NFP is allowed to rent a space free of charge, or at a rental rate that is below the fair rent for the space, the NFP must record an in-kind contribution estimated at the fair rent or the difference between the fair rent and the below-market rent that the NFP is paying. If the lease involves multiple years, the NFP must record the net present value for the entire term of the arrangement in year one as a donor-restricted contribution and pledges receivable. The restriction would be released over the term of the lease agree- ment. In a multiyear lease, the fair value of the lease recorded in the books cannot exceed the fair value of the property. For example, if the total lease payments over the term of the lease equal $2 million where the fair market value of the property is $1.8 million, the contribution recorded in the first year would be limited to $1.8 million. • Donated Professional Services When professionals such as accountants, lawyers, doctors, carpenters, nurses, teachers and other pro- fessionals provide pro bono services to an NFP, the fair market value of such services must be estimated. This can be achieved by using the average hourly rates for such services as published by the U.S. Bureau of

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