We just did a land transaction where we sold some acreage to a company but most of it we donated to them. I think I have a good understanding of the entry that I need to do but my boss asked me what GAAP says about it. How do I look up the GAAP rules on recording a donation of assets?
USA Where to look at GAAP rules?
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Werner Reisacher
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Your question raises a few issues. Kirby asks one of the principal ones. GAAP is one part of the issues, the other is the IRS. (gift tax)
According to GAAP, every financial transaction must be recorded in the books. Assets are to be valued at "lower of cost or market". You state that your company carried out some land transactions. Some of the assets were sold, the majority of them were donated. For the part you sold, you would debit the sales price to the receivable account, eliminate the net book value of the capitalized asset by crediting Fixed Assets and debit/or credit the difference as a capital gain profit/(loss) (other income/expense)
The part that you donated would in principle be booked the same way. If that asset still has a net book value, you would have to write off the remaining book value against capital gain/(loss) However, there is a big difference between donating that asset to a Charitable Foundation, an unrelated third party, or a company that is owned by the same shareholder. Giving it to a Charitable Foundation could give you a tax deduction depending on the net book value of the assets in your books. Transfering it to a related company would require adherence to the "lower of cost or market" rule for the "receiving company" Giving it as an outright gift, to a third party could raise a "gift tax" issue with the IRS. Rather than spending time to find the GAAP para in which "lower of cost or market" and "asset valuation" is concerned or finding the IRS Section under which the rule "a transfer of economic values between two parties must be recognized by both parties", I would "google the term "lower of cost or market" and "gift tax" and show your findings to your boss.
According to GAAP, every financial transaction must be recorded in the books. Assets are to be valued at "lower of cost or market". You state that your company carried out some land transactions. Some of the assets were sold, the majority of them were donated. For the part you sold, you would debit the sales price to the receivable account, eliminate the net book value of the capitalized asset by crediting Fixed Assets and debit/or credit the difference as a capital gain profit/(loss) (other income/expense)
The part that you donated would in principle be booked the same way. If that asset still has a net book value, you would have to write off the remaining book value against capital gain/(loss) However, there is a big difference between donating that asset to a Charitable Foundation, an unrelated third party, or a company that is owned by the same shareholder. Giving it to a Charitable Foundation could give you a tax deduction depending on the net book value of the assets in your books. Transfering it to a related company would require adherence to the "lower of cost or market" rule for the "receiving company" Giving it as an outright gift, to a third party could raise a "gift tax" issue with the IRS. Rather than spending time to find the GAAP para in which "lower of cost or market" and "asset valuation" is concerned or finding the IRS Section under which the rule "a transfer of economic values between two parties must be recognized by both parties", I would "google the term "lower of cost or market" and "gift tax" and show your findings to your boss.
Hi 10point
I suggest that you do NOT follow the above: "google the term "lower of cost or market" and "gift tax" and show your findings to your boss."
Reason is that the term "lower of cost or market" is used for inventories or certain securities but never for land transactions. If the land needs to be adjusted lower, it is termed "impairment." But an impairment was not at all at issue in your post in any case.
If your boss knows any accounting and you come in citing LCM for land, boss will question your accounting expertise.
I suggest that you do NOT follow the above: "google the term "lower of cost or market" and "gift tax" and show your findings to your boss."
Reason is that the term "lower of cost or market" is used for inventories or certain securities but never for land transactions. If the land needs to be adjusted lower, it is termed "impairment." But an impairment was not at all at issue in your post in any case.
If your boss knows any accounting and you come in citing LCM for land, boss will question your accounting expertise.
Werner Reisacher
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And how do you value an asset that is donated to your company Kirby?
Need clarification because
Original post concerned accounting for donating an asset GIVEN TO a company
while above in this post thread you ask
how do you value an asset that is donated to your company
Which asks about accounting for an asset OBTAINED BY your company
Is that what you mean to ask?
If so I suggest that would probably be better placed as a new post thread to avoid confusion with accounting for donating assets.
Original post concerned accounting for donating an asset GIVEN TO a company
while above in this post thread you ask
how do you value an asset that is donated to your company
Which asks about accounting for an asset OBTAINED BY your company
Is that what you mean to ask?
If so I suggest that would probably be better placed as a new post thread to avoid confusion with accounting for donating assets.
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