Assets acquired by donation are recorded at the fair market value of the asset at the date of donation. The fair market value is the amount that the asset would be exchanged for between willing buyers and sellers in an arm’s length transaction.
The donation is not recorded as revenue. Instead, the asset is recorded as an asset on the balance sheet. The asset is then depreciated over its useful life.
Example:
A company receives a donation of a building that is worth $1 million. The company records the donation as an asset on the balance sheet and depreciates the asset over its useful life of 20 years.
The donation of an asset can have a significant impact on the company’s financial statements. The asset that is donated will have a higher basis and will be depreciated over a shorter period of time.
The donation of an asset can also be important for tax purposes. The company will be able to deduct the cost of the asset that is donated over a shorter period of time.