Accounting Treatment for Non-Cash Donation

[GYOUNG]

Hi

Our company wants to donate inventory. Let say we deliver 30pcs of Item A to a charitable organisation, in order to determine the value of the donation, we have asked them to re-sell the goods and the proceeds will be treated as the donation amount. For accounting record purpose, they will issue us a receipt indicating the sum they have received. What is the proper journal entries to record these transactions?

For example:
Inventory - Cost@$50 (Total: $50 x 30 = 1500)
Donation - $100 x 30 = 3000 (proceeds received by the charitable org)

Cr. Inventory / Cost of Sales $1500
Dr. Donation (Expense Account - It's tax deductible) $3000
Cr. ???? ($1500 difference)

 

[Counterofbeans]

For "book" purposes, all you can do is Dr expense for the value of the donated asset and Cr the asset account. You won't touch your GL for the FMV of the donated asset(s)

For "tax" purposes, it gets trickier. In general, charitable deductions are allowed as a tax deduction to the extent that one records expense in their books, but that is subject to certain limitations. Amounts exceeding these limitations are carried forward into future years. In other words, this can only, "hurt" you.

In THIS situation, I believe there are special rules for appreciated property (i.e. gifting property which has a higher FMV than book value). You will very much want to discuss with your tax professional, for this gets complicated. I believe you have a reasonable shot at this being a, "permanent" difference, which would positively affect your tax rate.

 

[The Finance Writer]

On a US federal income tax return, the donation deduction is limited to the cost for inventory items (or the FMV if that is a lower figure). Only a corporation may receive a charitable contribution deduction for the value of an inventory item that exceeds cost... and the donated item must be used solely for care of the ill, the needy, or infants in accordance with the mission of the charitable organization.