How do you value gifts-in-kind in your accounting records?
In South Africa it's estimated that income generated through donations is in excess of R11 billion per annum. But many entities don't know how to treat this income in their accounting records.
Robin, a member of the Accounting and Tax Club
, asked a question about gifts-in-kind and the impact they have on his books.
Let's see what he asked, and what Alan Lewis, Tax Advocate and independent tax consultant
, advised Robin about valuing this correctly.
How to make yourself invisible to SARS...
SARS is hungry for money.
It's teetering on the edge of around a R150 million shortfall... and if it falls in, lights will go off, roads will crumble and water will become undrinkable.
So, SARS' only hope is to go after taxpayers with a vengeance.
But not individual taxpayers.
No. It's set its sights on corporate taxpayers, like you.
What are the requirements for valuing gifts-in-kind in your accounting records?
What kinds of valuation must be performed to validate the amounts raised? E.g. if an NGO receives free airtime on a TV station for advertising, or a printing company does the printing of a NGO's annual report (this includes cost of paper, time, machinery overheads)?
Do we just take the word of the supplier about the cost of these gifts-in-kind, and record them like this in the accounting records? We've found it difficult to get quotes for similar products.
But what are gifts-in-kind?
Gifts-in-kind are contributions of goods or services, other than cash grants.
Corporations often give gifts-in-kind to non-profit organisations.
They'll offer them along with or instead of cash grants.
But how do you treat these in your accounting records? Let's see what the expert had to say…
The one golden rule for gifts-in-kind
The general rule is to value the item you receive according to what you could get in the open market, if you'd be able to sell it under some reasonable method of sale.
Putting a zero in the wrong place on the new Vat Return could trigger your next SARS audit!
Find out how to make sure this never happens to you by getting your VAT Return right every single time. Find out more here.