Assets are the resources a company uses in its business operations. A donated asset is one that a company receives in a nonreciprocal transfer, which means the company provides nothing in return for receiving the donated asset. Although your company does not pay any money for a donated asset, you must record the asset’s cost at its fair market value, which is the price the asset can sell for on the open market. The way you report the receipt of the asset on your financial statements depends on the type of entity from which you received the donation.
Determine the fair market value of a donated asset that your company has received. You can use the price of the same asset or a similar asset if prices are available, or consult a professional appraiser. For example, assume the fair market value of a donated asset is $100,000.
Debit the appropriate asset in a journal entry in your accounting records by the amount of the asset’s fair market value. Use the account that corresponds with the type of donated asset. A debit increases an asset account. In this example, if the donated asset is a piece of equipment, debit your “equipment” account by $100,000.
Credit the “donated capital” account by the amount of the asset’s fair value in the same journal entry only if you received the asset from a government entity, such as a city. Or, credit the account called “gain on receipt of donated asset” by the same amount only if you received the asset from a non-governmental entity, such as another company. In this example, assume you received the piece of equipment from another company. Credit “gain on receipt of donated asset” by $100,000.
Report the fair market value of the donated asset as a line item in the long-term assets section of your balance sheet. In this example, report “equipment $100,000” on your balance sheet.
Report a gain on receipt of donated asset in the non-operating gains and losses section of your income statement. Or, report an amount of donated capital in the stockholders’ equity section of your balance sheet. In this example, report “gain on receipt of donated asset $100,000” as a line item on your income statement.
Include any restrictions or stipulations that the donating entity included as a condition of the donation, such as a requirement to hire a certain number of employees locally, in the footnotes to your financial statements.
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