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By Chad Robinson, CPA Senior Accountant

Many nonprofits receive non-cash gifts in the form of auction items for charity, excess or obsolete goods, free rent or other services, and free supplies or materials. These non-cash gifts are referred to as gifts in-kind and must be measured and evaluated for appropriate recording under generally accepted accounting principles. The challenge in evaluating gifts in-kind is determining the market or accessing information to help determine the fair value. There are few important things to remember when valuing gifts in-kind.

First, each instance is different and won't necessarily be treated like others. It is important for a nonprofit to have an approach and a guide to help determine the appropriate steps to value an item when the situation becomes complex or unusual. Secondly, fair value is based on the exit price. This means that the fair value is based on a price the good or service could be sold for on the measurement date. Understanding the potential market participants for the item will aid in determining the "market," resulting in an accurate fair value measurement. Next, understanding the item being received and the future economic benefit will help in determining the fair value of the item. If a non-cash contribution received does not provide a future economic benefit or service potential, it may indicate that the contribution should not be recognized. Lastly, understanding any restrictions on the asset contributed will impact the fair value determination. For example, if an asset contributed is only partially functioning and its future benefit is limited because of the restriction, the fair value will likely be less than a fully functioning version. However, donor imposed restrictions on the purpose or timing of the use of the contributed asset does not impact the fair value.

While many gifts in-kind can be measured at their fair value quite easily, some may be more difficult because of the lack of accessible data. In these cases, it is important for the organization to have an approach to valuing such gifts to properly record them. Understanding the items or services being received, the "market" for a potential transaction and any asset restrictions (excluding donor imposed restrictions) are all key factors in determining the fair value of gifts in-kind.



If you have any questions regarding the article above or any other issue affecting your not-for-profit organization please contact your Blue & Co. advisor or e-mail us at or call us at 800-717-BLUE


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