This article was written by Lisa Hann, CPA Manager at The Bonadio Group.
In September 2020, The FASB issued Accounting Standards Update (ASU) 2020-07, Not-for-Profit Entities (Topic 958): Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets. The purpose of ASU 2020-07 is to increase transparency on how a nonprofit organization uses and values contributed nonfinancial assets (also known as gifts-in-kind) through additional disclosures in the financial statements. Examples of nonfinancial assets include, but are not limited to, fixed assets such as land, buildings, and equipment; the use of fixed assets or utilities; supplies and materials such as food, clothing, or pharmaceuticals; intangible assets; contributed services; and unconditional promises of those assets. This update does not change the current method of accounting and recognition of nonfinancial assets included within Accounting Standards Codification (ASC) 958-605, Not-for-Profit Entities - Revenue Recognition.
ASU 2020-07 requires that a nonprofit present contributed nonfinancial assets on a separate line item in the statement of activities apart from contributions of cash or other financial assets.
The ASU also requires disaggregation by category that depicts the type of contributed nonfinancial assets received. This provides the reader of the financial statements with an understanding of the types of nonfinancial assets received. The nonprofit may use broad terms such as “supplies” instead of listing out specific items to avoid lengthy disclosures that may contain unnecessary details.
For each category of contributed nonfinancial assets received, the nonprofit must disclose the following:
- Qualitative information about whether the contributed nonfinancial assets were monetized (sold) or utilized during the reporting period. If utilized, the nonprofit will disclose a description of the programs or other activities in which those assets were utilized.
- The policy about monetizing rather than utilizing the nonfinancial assets, if applicable.
- A description of any donor-imposed restrictions associated with the contributed nonfinancial assets.
- A description of the valuation techniques and inputs used to arrive at fair value at initial recognition.
- The principal market (or most advantageous market) used to arrive at a fair value measure if it is a market in which the recipient nonprofit is prohibited by a donor-imposed restriction from selling or using the contributed nonfinancial assets.
While all disclosures mentioned above must be made, there is no specific requirement for how this information is presented. The following are considered common approaches to presenting the required information.
Contributions of nonfinancial assets included in the statement of activities are comprised of the following:
It is the Organization’s policy to sell all contributed vehicles immediately upon receipt at auction or for salvage unless the vehicle is restricted for use in a specific program. No vehicles received during the year were restricted for use. All vehicles were sold and valued according to the actual cash proceeds on their disposition.
Contributed services from attorneys are valued at the estimated fair value based on current rates for similar legal services. Contributed legal services were utilized for general and administration and there are no donor restrictions.
Food is valued based upon estimated wholesale prices of identical or similar products purchased. Food is restricted for use in the after-school program. The Organization does not sell contributed legal services or food received.
The amendments in the ASU should be applied on a retrospective basis and are effective for annual reporting periods beginning after June 15, 2021. Early adoption of this ASU is permitted.
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