Accounting for Donated Assets
We’ve inherited a significant amount of office furniture from the previous tenant in our new lease, and we’ve decided to accept it after the landlord offered. However, I’m at an impasse with our tax accountant regarding its Accounting treatment, as we operate for profit. I recorded the furniture as capitalized assets and recognized a gain, while she believes it should remain off our books.
My research suggests that the credit could potentially be classified as contribution revenue, with the assets valued at replacement cost. However, I’m struggling to find a specific Accounting standard that clarifies this scenario. Any insights or advice would be greatly appreciated!
One response
When Accounting for the office furniture left by the previous tenant, it’s essential to follow the applicable Accounting standards relevant to your business. Here are a few considerations:
Recognition of Assets: According to generally accepted Accounting principles (GAAP), property that is received without any cost typically needs to be recognized on the balance sheet if it’s expected to provide future economic benefits. Since you agreed to take the furniture, it would typically be recorded as an asset.
Valuation: You can value the furniture at its fair market value or replacement cost at the time you take possession. This would reflect the amount that you would reasonably pay for it if you had to acquire it from a market perspective.
Recording the Gain: The gain resulting from receiving the furniture can indeed be recorded as “contribution revenue” or “gain on contributed assets.” This reflects that the company is benefiting from an asset without incurring a cost for it.
Tax Implications: The tax treatment of this received asset and the corresponding revenue may vary depending on tax regulations in your jurisdiction. Make sure to discuss this with your tax accountant for further implications on your taxable income.
Consult relevant standards: It would be prudent to refer to the Financial Accounting Standards Board (FASB) Codification if you are in the U.S., or the International Financial Reporting Standards (IFRS) guidelines, if applicable. Specifically, look at the section that deals with property, plant, and equipment to find guidance on how to account for donated or contributed assets.
In summary, it sounds reasonable to capitalize the furniture as an asset on the balance sheet and recognize a corresponding gain or revenue, subject to your local accounting standards. It may be beneficial to reconvene with your accountant and possibly consult a professional who specializes in accounting standards to clarify the correct treatment based on your specific circumstances.