Non-Profit
Valuation of In-Kind Contributions
Nonprofit organizations often rely on non-cash contributions from donors, called in-kind contributions. The most common in-kind contributions are donated assets, space, and services. In-kind contributions should be recorded at their fair market value, or what the organization would have paid for these contributions had they not been donated.
There are many different methods organizations use to value these types of contributions. In addition to determining the value of in-kind goods to a nonprofit organization, organizations should understand what can be recorded under General Accepted Accounting Principles (GAAP) prepared financial statements and what can be valued and tracked for internal use and annual reports.
Valuing Donated Assets
Organizations often receive donated assets to help support their mission, all of which can be recorded as in-kind contributions under GAAP. Some of the most common donated assets include real estate, vehicle, equipment, food, clothing, and securities.
Organizations use a variety of methods to value the donated goods based on the type of good the organization receives. Some common valuation methods include:
- Real estate: Online resources such as Zillow, Redfin and other real estate websites can estimate the fair value of property received.
- Vehicles: Online resources such as Kelley Blue Book can determine the fair value of the vehicle received.
- Equipment: Online search engines or auction sites such as eBay can help value equipment donated.
- Food: Because organizations often receive a high volume of food items, and each item has a different value, it is not practical for organizations to value each individual item of food received. A common method for organizations to value food is by determining the pounds of food received and using the annual study by Feeding America that calculates the cost per pound of food.
- Clothing: Because organizations receive a high volume of clothing items and each item has a different value, it is not practical for the organization to determine the fair value of each individual item. Nonprofits can use valuation guides published by organizations such as Goodwill Industries International or the Salvation Army to calculate the value of the number of items received. When donated clothing is used as inventory in a resale shop, nonprofits typically record as revenue at the price at which the item is sold.
- Securities: Organizations should use the value on the date the securities received as the value of the securities. Most nonprofits have a policy of selling donated securities shortly after receipt. The change in values from receipt to sale should be recognized as a realized gain or loss.
Valuing Contributed Services
Donated services can range from free or discounted professional services to volunteer time. Although contributed services of any kind are important to nonprofits, only specific services can be recognized in GAAP financial statements. For services to be considered recognized by GAAP, they must create or enhance a nonfinancial asset (e.g., building, database, etc.) or they must require specialized skills and be provided by individuals with those skills. These services would typically need to be purchased if the services had not been donated, such as pro bono legal or accounting work.
An example of donated services that enhance or create a nonfinancial asset would be the construction of a new building. All the services provided to construct the building should be recognized under GAAP. This also includes things done by volunteers such as painting and landscaping that do not require a specialized skill because all those activities enhance the nonfinancial asset.
To value services provided by architects or construction crews, organizations generally request invoices from the service providers detailing the cost of the services donated.
To value volunteer hours used to enhance a nonfinancial asset, nonprofits will often use the minimum wage for the locality in which they are operating in to value the time donated by volunteers.
To value services requiring specialized skills, nonprofits typically take the hourly rate of the professional service providers and multiply by the hours received from the providers. The easiest way for nonprofits to gather this information is to use a valuation from the service provider.
Additionally, even when professional services are not donated fully, many providers will offer discounts for their services when working with nonprofits. Such discounts are also considered an in-kind contribution under GAAP. To value the donated portion of the services, nonprofits should request that the service provider outline the discounted portion of the services and record it as an in-kind contribution.
Volunteer hours that do not meet the above two criteria, such as serving meals at a food pantry, distributing clothes at a homeless shelter, or answering phones at a call center are not allowed to be recognized under GAAP. Although there is no GAAP recognition for these types of services because they do not require a special skill, it is still beneficial for nonprofits to understand the value of the services provided because these services often provide support for the organization’s mission and would otherwise need to be purchased. In addition, these types of volunteer hours can be disclosed in any non-GAAP financial reports to highlight the value of volunteers received by the organization.
To value these services, organizations generally take the number of volunteer hours provided and multiply by the minimum wage in the locality in which the services are provided.
Valuing Donated Space
Nonprofits often receive free or discounted use of leased buildings or office space from the owners of the property. The value of the benefits received should be calculated by determining what the fair value of the rental space would be and subtracting what the nonprofit pays. This is generally done by obtaining a valuation from the lessor of the property.
Recording the In-Kind Contributions Under GAAP
Once a nonprofit has determined the value of a GAAP recognized in-kind contribution, it should record the contribution in its accounting records. When the in-kind contribution is in the form of a fixed asset (e.g., real estate, building, etc.) or an enhancement to a non-financial asset, the organization should debit an associated asset account and credit an in-kind contribution account. When the contribution consists of services not enhancing a non-financial asset or are items to be distributed or consumed, the organization should debit in-kind expense and credit in-kind revenue.
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