to this transaction, which is the guarantor’s prom- ise to pay off the debt upon the NFP’s default. The NFP records a contribution if the NFP defaults on the debt and the guarantor pays off the debt. If the guarantor is a related party or company under common control, then the interest is not imputed. • Below-Market Interest Loans When an NFP receives interest-free loans or loans at interest below prevailing market rates, an in-kind contribution is generated and the NFP must impute interest on such loans. The value of the in-kind contribution is the difference between the stated interest rate in the loan agreement and the prevailing market interest rates, and the NFP records an interest expense with a corresponding credit to contribution. When the interest-free loan is long term, the presumption is that a portion of the long- term debt is imputed interest payable. Accordingly, in year one, the NFP records a portion of the debt as loan payable and the balance as imputed interest payable. In subsequent years, the imputed interest payable is amortized, and by the due date of the debt, the loan payable will be shown at the face value of the loan. If the interest-free loan is between a par- ent and a subsidy, imputing the interest is optional. RECENT DEVELOPMENTS The current disclosure requirements include the nature, extent, amount and programs or activities for which the contributed services were used, and any restriction imposed by donors on the use of contributed assets. On February 10, 2020, FASB issued a proposed ASU
intended to improve transparency around how NFPs present and disclose gifts-in-kind and require NFPs to have additional presentation and disclosure require- ments as outlined below.
PROPOSED PRESENTATION REQUIREMENTS
Not-for-profit organizations would be required to present contributed nonfinancial assets as a separate line item in the statement of activities.
PROPOSED DISCLOSURE REQUIREMENTS:
a) Disaggregate the gifts-in-kind by category. b) For each category, provide qualitative information on whether the gifts-in-kind were or are intended to be either monetized or used during the reporting period and future periods. If used, include a description of programs in which these gifts-in-kind were or are intended to be used. c) Description of donor restrictions on the gifts-in-kind, if any. d) The valuation technique used to arrive at fair market value, including the principal market or most advan- tageous market if there is no principal market. The comment period ends on April 10, 2020. The professionals in Marks Paneth’s Nonprofit, Government & Healthcare Group will continue to monitor updates to the financial reporting of in-kind contributions to help nonprofits adapt to and comply with changing disclo- sure requirements.
Joseph J. Kanjamala, CPA, CGMA , Partner in the firm’s Nonprofit, Government & Healthcare Group, has more than 20 years of public accounting experience. He has developed deep skills providing audit services to nonprofit organizations and has served numerous charitable organizations, private foundations and educational institutions. Joe can be reached via email at email@example.com or at 212.503.8952.
markspaneth.com FIRST QUARTER, 2020 Nonprofit & Government Times 17
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