Maximizing the Impact of Donated Property: Accounting for Auction vs. Internal Use

Adam Koomer, CPA

Not-for-profit schools often rely on the kindness and generosity of parents and alumni to support their educational goals.  Donated property, such as musical equipment, art, or, even, real estate, can significantly contribute to a school’s financial strength.  However, it is crucial to know how to deal with these donations for proper financial management.

Accounting for donated property presents a dilemma for schools:  whether to utilize the item internally or auction it off for fundraising purposes.  The decision will, of course, affect the financial records and overall transparency of the institution.

Donated Property for Auction:

• Valuation: The fair market value of the donated item is recognized as revenue when auctioned.  Accurate valuation is essential to maintain financial clarity.
• Disclosure: Financial statements should transparently explain how the auction proceeds will be used.  This transparency strengthens trust in the fund usage.

Donated Property for Internal Use:

• Recording: The item must be initially recorded as an asset at fair value.  Subsequently, calculating and recording of depreciation or amortization may be necessary.
• Utilization: Clearly defining the purpose and use of these donated assets ensures accountability and compliance with donor intent.

Understanding the accounting procedures for donated property is vital to maintain the donors’ and the public’s trust.  Each decision has its financial implications, and schools must communicate these choices in their financial statements.  Proper accounting practices ensure that these valuable contributions continue to enhance the total educational experience.