Accounting for donated fixed assets

March 8, 2013

Fixed asset donations are rare when one talks about for-profit companies, but such donations are more common when one talks about non-for-profit companies. Fixed asset donations can be inbound or outbound. How does a company account for such donations?

1. Two types of fixed asset donation

Asset donation is a nonreciprocal transfer of an asset because it is a transfer of an asset in one direction. Assets donations can be inbound and outbound.

Inbound fixed asset donations take place when a fixed asset is donated to a company (e.g., a non-for-profit). The company should record the received asset at its fair market value, which can be determined through an appraisal, the market rate on similar assets, or the net present value of the expected future cash flows generated by the asset.

The company can record the donated asset by:

  • Debiting a fixed asset account (at fair market value), and
  • Crediting contribution revenue

Similarly, an outbound fixed asset donation is when a company donates a fixed asset. In this case, the company recognizes the fair value of the donated asset, net of its book value. †The company recognizes an expense for the fair value of the donated asset (e.g., Dr. Charitable Donations; Dr. Contribution Expense). If the fair value does not equal the asset net book value, the company will recognize either a gain or loss. If the fair value is above the net book value, the company will record a gain; on the other hand, if the fair value is below the net book value, the firm will recognize a loss on the fixed asset donation.

2. Example of an inbound fixed asset donation

Letís assume that Private-Donor Company donated a building to ABC Company with a net book value of $200,000 ($400,000 historical cost - $200,000 accumulated depreciation). The fair market value of the building is $225,000. ABC Company should recognize contribution revenue.

Account Titles

Debit

Credit

Building

$225,000

 

     Contribution Revenue

 

$225,000

3. Example of an outbound fixed asset donation

Letís continue with the example and assume that Private-Donor Company donated a building to ABC Company with a net book value of $200,000 ($400,000 historical cost - $200,000 accumulated depreciation). The fair market value of the building is $225,000. To record the donation of the building, Private-Donor Company would make the following journal entry:

Account Titles

Debit

Credit

Charitable Donations

$225,000

 

Accumulated Depreciation

$200,000

 

     Building

 

$400,000

†††† Gain on Property Donation

 

† $25,000

In this example, because the fair market value of the building is above its net book value, the donating company recognized a gain on the property donation. If the market value was below the net book value, the company would recognize a loss.

For instance, letís assume that Private-Donor Company donated land to XYZ Company worth $100,000. Land is recorded in the books at $120,000. Private-Donor Company would recognize a loss on the donation:

Account Titles

Debit

Credit

Charitable Donations

$100,000

 

Loss on Land Donation

$20,000

 

     Land

 

$120,000

In both examples, the company recorded the donation at the fair market value in the Charitable Donations account. These transactions could be recorded in the Contribution Expense account. In any case, the donation should be reported as an expense (i.e., debited) in the income statement.

Not a member?
See why people join our
online accounting course:
Lecture Contents:
Free Study Notes
Download free accounting study notes by signing up for our free newsletter (example):
First Name:
E-mail:
We never share or sell your e-mail to third parties.
Ask a Question
Suggest a Topic
Do you have an interesting question or topic?
Suggest it to be answered on Simplestudies.com: