Donated Assets Journal Entry: A Simple Fair Value Guide
A donated assets journal entry records an unconditional gift at fair value. The recipient debits the asset received (such as land or equipment) and credits Contribution Revenue. The donor debits Contribution Expense at fair value, credits the asset at its carrying amount, and records the difference as a gain or loss on disposal.
Two entities account for the same transfer from different starting points. The recipient has acquired an asset; the donor already has an asset on its books that must be removed. Keeping those perspectives separate makes the entries much easier.
Video lesson with Professor Farhat
Watch the focused segment from 22:59 to 23:36 explaining why a recipient uses fair value rather than the donor’s basis. The full video covers contribution revenue for nonprofits, including conditional and unconditional pledges, for CPA FAR candidates.
What amounts belong in a donated assets journal entry?
Fair value is the price the asset would sell for in an orderly transaction between market participants at the measurement date. That is the definition in ASC 820, Fair Value Measurement. Carrying amount, also called book value, is the amount already recorded on the donor’s books. Those amounts can differ substantially.
This guide follows the unconditional land contribution in Appendix 9A. The examples cover ordinary noncash contributions from nongovernmental donors that have no ownership interest in the recipient. Assume a completed transfer, reliable fair value information, no donor restrictions, and nothing of commensurate (roughly equal) value returned to the donor. Owner investments and income-tax deductions are different transactions.
| Amount | Recipient’s use | Donor’s use |
|---|---|---|
| Fair value at transfer | Measure Land and Contribution Revenue | Measure Contribution Expense |
| Donor’s carrying amount | Does not become the recipient’s recorded cost | Remove the amount already in Land |
| Fair value less carrying amount | No separate donor-related gain | Gain if positive; loss if negative |
The Financial Accounting Standards Board (FASB) discusses fair-value measurement of contributions received and made in its archived Statement 116, paragraphs 8 and 18. This is historical source material. Current U.S. generally accepted accounting principles (GAAP) live in the Accounting Standards Codification (ASC). The recipient’s fair value measurement is in ASC 958-605-30-2, and the donor’s is in ASC 720-25-30-1. The donor’s gain or loss comes from the nonmonetary transactions guidance now in ASC 845, which carried forward APB Opinion 29: an asset given to another entity is recorded at fair value, with a gain or loss on the disposition. Statement 116 says it reaffirms Opinion 29 in paragraph 83.
How does the recipient record a donated asset?
Hypothetical example. Alder Manufacturing donates land to Greenway Learning, an unrelated nonprofit. The land’s fair value is $180,000, and Alder’s carrying amount is $115,000. The gift is unconditional and Greenway gives no direct benefit in exchange.
| Account | Debit | Credit |
|---|---|---|
| Land | $180,000 | — |
| Contribution Revenue | — | $180,000 |
Greenway records the resource it received at $180,000. It does not use $115,000, because that figure describes Alder’s accounting history. It also does not record a $65,000 gain based on Alder’s old cost; Greenway did not previously own the land.
No Cash account appears. A transaction can increase assets and contribution revenue without bringing in cash. A zero purchase price does not mean the donated land has zero accounting value.
CPA FAR tip: a nonprofit reports contribution revenue by net asset class. Because Alder placed no restrictions on the land, Greenway’s credit is more precisely Contribution Revenue, Without Donor Restrictions. If Alder had stipulated how or when the land must be used, the credit would go to Contribution Revenue, With Donor Restrictions. Nonprofits also present contributed nonfinancial assets, like this land, as a separate line item in the statement of activities, apart from gifts of cash and other financial assets (ASU 2020-07).
How does the donor record a donated asset?
Alder measures its contribution expense at $180,000 but must remove only the $115,000 currently in its Land account. The $65,000 difference is a gain on disposal, the same logic you use in any asset disposal journal entry.
| Account | Debit | Credit |
|---|---|---|
| Contribution Expense | $180,000 | — |
| Land | — | $115,000 |
| Gain on Disposal of Land | — | $65,000 |
Check the entry: debits of $180,000 equal credits of $180,000. The donor’s net income effect is a $115,000 decrease: $180,000 expense minus $65,000 gain. Reporting the gross expense and gain explains both the size of the gift and the appreciation realized on disposal.
Crediting Land for $180,000 would remove more than Alder recorded. Debiting only $115,000 to Contribution Expense would omit the separate fair-value measurement and gain. Both shortcuts lose information.
How do you record a contribution step by step?
- Identify the entity. Are you preparing the recipient’s books or the donor’s books?
- Check entitlement. If the gift has conditions, use the conditional vs unconditional contributions test before assuming immediate recognition.
- Label the amounts. Write “fair value” and “donor’s carrying amount” beside the correct figures.
- Record and balance. The recipient uses fair value. The donor combines fair-value expense with removal of its carrying amount and the disposal difference.
If the donor receives valuable goods, services, or rights, first read contribution vs exchange transaction. A transfer described casually as a donation may actually be a purchase.
What if fair value is below carrying amount?
Hypothetical variation. Another parcel has fair value of $70,000 and a carrying amount of $85,000 immediately before donation. Assume no prior adjustment is required for this exercise.
The recipient debits Land and credits Contribution Revenue for $70,000. The donor debits Contribution Expense $70,000, debits Loss on Disposal $15,000, and credits Land $85,000. The $15,000 loss fills the gap between the two measurement amounts.
This is the same balancing logic as the gain example. Do not force a gain into every donation problem. The sign of fair value minus carrying amount determines the direction of the difference.
What are the most common donated-asset mistakes?
Do not mix financial reporting with a charitable tax deduction. Do not credit Cash when the donor transfers land. Do not carry the donor’s historical cost into the recipient’s books. Finally, do not treat a contribution as an owner’s equity investment merely because no repayment is due.
Land keeps the example focused because ordinary land is not depreciated. Depreciable assets introduce additional bookkeeping, and specialized donations such as services or collections have rules beyond this lesson’s basic land example.
Interactive land donation journal entry
Practice recording a land donation from the donor’s perspective. Use fair value and carrying amount to determine the contribution expense and the gain on disposal.
Practice questions with answers
1. Which amount does the recipient record?
Donated land has fair value of $92,000 and donor carrying amount of $54,000. The gift is unconditional.
Answer: Debit Land $92,000 and credit Contribution Revenue $92,000. The donor’s carrying amount does not measure the recipient’s asset.
2. Complete the donor’s entry.
Use the same facts. What expense and gain does the donor recognize?
Answer: Debit Contribution Expense $92,000; credit Land $54,000 and Gain on Disposal $38,000. Total credits equal the $92,000 debit.
3. What if the two amounts are equal?
A donor transfers land with fair value and carrying amount both equal to $48,000.
Answer: Debit Contribution Expense $48,000 and credit Land $48,000. There is no gain or loss because no measurement difference exists.
Want more practice like this? The Intermediate Accounting course goes deeper on topics like this one with video lessons and practice questions. Not ready to commit? Try the free sample course first and see how the lessons work.
Frequently asked questions
Why can a donor report a gain without selling the land?
Giving land away is a disposal, just like selling it. The donor measures Contribution Expense at fair value but removes only the land’s carrying amount. When fair value is higher than carrying amount, the difference is a gain on disposal.
Does the recipient record the donor’s gain?
No. The donor’s gain belongs only on the donor’s books. The recipient records the donated asset and Contribution Revenue at fair value and never uses the donor’s carrying amount.
Is every donated asset recorded this way immediately?
No. First evaluate whether the arrangement is a contribution and whether it is conditional. Specialized assets and services can require additional guidance.
What if the donated asset is equipment instead of land?
The recipient still debits Equipment and credits Contribution Revenue at fair value. It then depreciates the equipment starting from that fair value over the equipment’s useful life to the recipient. The donor first records depreciation up to the donation date. Then it removes both the equipment’s cost and its accumulated depreciation, and records a gain or loss for the difference between fair value and the net carrying amount.
What if a business, not a nonprofit, receives the donated asset?
An ordinary unconditional gift from a nongovernmental donor can also be a contribution to a business. For example, an unrelated private organization might donate land without receiving commensurate value in return. For a contribution within ASC 958-605, the business records the land at fair value and credits Contribution Revenue. Owner investments and government grants to businesses require evaluation under their applicable guidance.
Key takeaways
- Both sides measure an unconditional donation at fair value.
- The recipient debits the asset and credits Contribution Revenue. It never uses the donor’s carrying amount.
- The donor debits Contribution Expense at fair value and credits the asset at its carrying amount.
- Fair value above carrying amount means a gain on disposal for the donor. Fair value below carrying amount means a loss.
- Before recording anything, check whether the gift is conditional and whether it is really a contribution and not an exchange.
Sources and lesson context
This original student guide supports Wiley Intermediate Accounting, Appendix 9A: Accounting for Contributions. Examples and practice questions above are hypothetical and independently written. For the classification and condition framework, see FASB’s ASU 2018-08; current authoritative U.S. GAAP is contained in the FASB Accounting Standards Codification.
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About the author
Mansour Farhat, CPA, CIA, DBA, is the founder of Farhat Lectures, where he teaches accounting students and candidates preparing for the CPA, CMA, and EA exams.
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