Learning objective

• Identify accounting treatment for contributed services, gifts in-kind, and contributed facilities.

Background

Although many donors provide cash gifts, contributions are not limited to cash. Many people volunteer their time on behalf of their favorite not-for-profits (NFPs). FASB differentiates between volunteer work that qualifies as a contributed service and those that do not. To recognize contributions of services, the donor must either create or enhance a nonfinancial asset or provide a service that requires specialized skills. For example, a CPA’s act of volunteering to prepare the 990 for an NFP would be a contributed service that requires specialized skills. However, a CPA’s act of volunteering to staff the phone bank for the annual fund drive would not require specialized skills. An NFP receives many hours of volunteer work that are not recognized in the financial statements.

When a contributed service meets the requirements, the NFP would recognize contribution revenue and either an asset or expense. Whether such contributions should be recognized is unaffected by whether the NFP could afford to purchase the services at their fair value.

Many NFPs still want to recognize the work of volunteers in their financial statements. Although they can’t recognize the value in the financial statements, they can indicate the hours of benefits received in the notes and indicate they were not recognized because they didn’t meet the criteria for recognition.

In addition to time, donors can also donate tangible personal property to an NFP. The term gifts in-kind is used broadly to refer to all noncash gifts. When an NFP receives gifts in-kind, they must recognize it at fair value, which means the NFP has a responsibility to determine the fair value independently and without bias. The value that a donor recognizes for tax purposes or that a published source indicates is not necessarily fair value, may differ significantly from fair value. For gifts of the use of long-lived assets, such as buildings or other facilities, the not-for-profit organization should report an unconditional contribution for the difference between the fair rental value of the property and the stated amount of the lease payments.

Case study 1

An NFP organization was founded only three years ago but has grown to serve 5,000 needy men and women in its two kitchens. Each kitchen is managed by a retired chef with years of experience in restaurants that served large numbers of people. Other volunteers — many recruited from local churches — work in two- to four-hour shifts at serving, kitchen duties, and cleanup. A committee of the Board of Trustees recruits the volunteers and prepares the weekly rosters. The space, fixtures, and furnishings are contributed by a restaurant chain that has a number of empty properties. The financial support received during the year totaled $800,000. Almost all of this was used to purchase supplies and food, pay for utilities, and publicize the kitchens. Costs incurred in recruiting the “other volunteers” amounted to $100,000 per year.

Questions

Board members ask the following questions:

1. Volunteer services — Should the values of any of the volunteer services be disclosed in our financial statements? Where and how should the values be disclosed? Where should the $100,000 incurred in recruiting the “other volunteers” be reported?

    

    

2. Contributed space, fixtures, and furnishings — Our kitchens could not be run at all without these. Should the space, fixtures, and furnishings be valued and disclosed?

    

    

3. Are other disclosures recommended? — This endeavor is important to us. Do you believe that the impact we have on the community is fully reflected with dollars? Is there any other way to disclose our impact?

    

    

4. Disclosure of matching effort — Some of our grants call for evidence of matching effort, and we have shown the values of most contributed services for this reason. We know that FASB rules allow recognition of only certain types of contributed services. For grant purposes, how can we get the values of all the other contributed services into the statements?

    

    

Case study 2

In this case, the organization is faced with two situations that puzzle the executives.

The executive producer and the treasurer of the Summer Theater Organization are debating the following information needed to comply with accounting and reporting guidance:

1. The stage settings we worked so hard to build: We may be able to use them again next year, with additions and changes. Aren’t these assets?
2. The seamstress, Mrs. Harris, who heads up Costume: She’s an expert. We paid a woman $50,000 last year for the same work. Mrs. Harris did it all as a volunteer this year.
3. The audio engineer: He fixed our system. It would have cost $20,000 to get a new one. He didn’t charge us anything.
4. The trumpet soloist: We use her every year. She comes from our affiliate NFP, that controls us, for no charge.

Question

1. Prepare the treasurer’s responses, considering whether the services meet the tests described by FASB, how to value the services, and what to do about the lobby addition that the executive producer did not even mention.

    

    

Knowledge check

1. Assume the services provided by the retired chef fits the criteria for contribution recognition. How would an NFP record the contribution?
   1. Debit an asset and credit a liability.
   2. Debit a liability and credit an asset.
   3. Debit expense and credit contribution revenue.
   4. Debit contribution expense and credit sales.
2. The services of the committee of the board of trustees for recruiting volunteers and preparing weekly work rosters should be
   1. A debit to an asset and a credit to a liability.
   2. A debit to expense and a credit to contribution revenue.
   3. A debit to contribution revenue and a credit to expense.
   4. Not recorded because they are not using specialized skills.
3. Suppose the organization relies on volunteers to accomplish its mission, and this may be important to readers of the entity’s financial statements. How can contributed services not meeting criteria for recognition be reported?
   1. Should not be reported.
   2. Can be disclosed only in a management letter.
   3. Management can make an election to record all contributed services.
   4. Described in a note, which could include the number of volunteer hours.