FASB ASC 958-605 provides guidance for contributions of cash and other assets received. When recording these contributions, an organization needs to determine if the revenue is a contribution transaction or another kind of transaction, such as an exchange transaction. Here we will identify some factors to consider which can assist in determining whether a contribution should be recorded as a contribution transaction or an exchange transaction.
The FASB ASC glossary defines a contribution as an unconditional transfer of cash or other assets to an entity or a settlement or cancellation of its liabilities in a voluntary nonreciprocal transfer by another entity acting other than as an owner. The definition of an exchange transaction, according to the FASB ASC glossary, is a reciprocal transfer between two entities that results in one of the entities acquiring assets or services or satisfying liabilities by surrendering other assets or services or incurring other obligations. In a contribution transaction, the value, if any, returned to the resource provider is incidental to potential public benefits. In an exchange transaction, the potential public benefits are secondary to the potential proprietary benefits to the resource provider.
Identified below are a few indicators to use to determine whether a contribution should be recorded as a contribution transaction or an exchange transaction.
1. What is the recipient nonprofit’s intent in soliciting the asset?
- Soliciting the asset as a contribution – contribution transaction
- Seeking resources in exchange for specified benefits – exchange transaction
2. What is the resource provider’s expressed intent about the purpose of the asset to be provided by the recipient nonprofit?
- Provider is making a donation to support the nonprofit’s programs – contribution
- Provider is transferring resources in exchange for specific benefits – exchange
3. What is the method of delivery by recipient nonprofit to third-party recipients?
- At the discretion of the recipient nonprofit – contribution
- Specified by the resource provider – exchange
4. What is the method of determining the amount of the contribution?
- Resource provider determines amount – contribution
- Amount contributed equals the value of the assets to be provided by the recipient nonprofit, or the assets’ cost plus markup – exchange
5. Are there penalties assessed if the nonprofit fails to make timely delivery of assets?
- Recipient nonprofit not penalized for nonperformance – contribution
- Recipient nonprofit penalized for nonperformance – exchange
6. To whom will the recipient nonprofit deliver the assets?
- Delivered to individuals or organizations other than the resource provider – contribution
- Delivered to the resource provider or to individuals or organizations closely connected to the resource provider – exchange