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12.3 Transactions that are part-exchange and part-contribution
Publication date: 27 May 2020
us NFP guide
Sometimes a single revenue transaction may be in part an exchange and in part a contribution. In these situations, only the exchange portion is within the scope of ASC 606; the remainder is contribution revenue accounted for using the principles in ASC 958-605.
ASC 606-10-15-4 provides a principle for bifurcating revenue transactions that are partially within the scope of ASC 606 and partially within the scope of other guidance. That principle indicates that if the other guidance specifies how to separate or initially measure one or more parts of a “hybrid” transaction, an entity should apply that separation or measurement guidance first.
Consistent with that principle, NFPs look to guidance provided by ASC 958 on separating the contribution and exchange elements of a single transaction. Examples in ASC 958-30-55-4, ASC 958-605-55-10, and ASC 958-220-55-15 illustrate the framework that should be used. That framework requires an NFP to first determine the fair value of the exchange portion of the transaction, and then measure the contribution portion as the excess of the resources received over the fair value of the exchange portion.
Excerpt from ASC 958-30-55-4
The transfer [of assets in a split interest agreement] is partially an exchange transaction—an agreement for annuity payments to a beneficiary over time—and partially a contribution. The contribution received by [the NFP] is the unconditional right to receive the remainder interest of the annuity trust. The amount of the contribution received by [the NFP] is the fair value of the trust assets ($100,000 cash transferred) less the fair value of the estimated annuity payments (which is the present value of $5,000 to be paid annually over the expected life of the annuitant if present value techniques are used to measure fair value).
Excerpt from ASC 958-605-55-10
For example, if an NFP has annual dues of $100 and the only benefit members receive is a monthly newsletter with a fair value of $25, $25 of the dues are received in an exchange transaction and should be recognized as revenue as the earnings process is completed and $75 of the dues are a contribution.
Excerpt from ASC 958-220-55-15
[An NFP] may report the gross revenue from special events and other fundraising activities as part exchange (for the fair value the participant received) and part contribution (for the excess of the payment over that fair value).
AAG-NFP 5.43 recommends that NFPs apply this fair value residual separation approach to all part-contribution, part-exchange transactions.
Excerpt from AAG-NFP 5.43
The Financial Reporting Executive Committee (FinREC) believes that in circumstances in which the transaction is in part a contribution and in part an exchange, NFPs should first determine the fair value of the exchange portion of the transaction, with the residual (excess of the resources received over the fair value of the exchange portion of the transaction) reported as contributions.
The illustrations provided in ASC 958 involve split-interest agreements (see NP 8.7), dues (see NP 12.4.3), and special events (see AAG-NFP 5.110 to AAG-NFP 5.114). Other situations when resources might be received in transactions that are part exchange, part contribution include:
- Naming opportunities (see AAG-NFP 5.53 to AAG-NFP 5.56)
- Acknowledgement of donors by status or recognition levels (e.g., platinum, gold, or silver levels), with benefits that increase based on the level of recognition (see AAG-NFP 5.57)
- Gala performances (see NP 12.4.4)
12.3.1 Contributions inherent in bargain purchase transactions
Another type of transaction that may be in part an exchange and in part a contribution is a “bargain purchase.” In contrast to the transactions discussed in NP 12.3 in which a good or service is being procured from the NFP in a transaction that also includes a contribution element, these are transactions in which the NFP is procuring a good or service for less than fair value because the seller intends for the difference between the consideration paid by the NFP and the fair value of the asset or services transferred to the NFP to represent a donation.
A common example is a bargain purchase of real estate, discussed in ASC 958-605-55-6 and AAG-NFP 5.43.
Excerpt from ASC 958-605-55-6
[A] single transaction may be in part an exchange and in part a contribution. For example, if a donor transfers a building to an entity at a price significantly lower than its fair value and no unstated rights or privileges are involved, the transaction is in part an exchange of assets and in part a contribution to be accounted for as required by the Contributions Received Subsections of this Subtopic.
Excerpt from AAG-NFP 5.43
An individual has a home currently valued at $150,000, which is subject to a mortgage of $30,000. If the individual pays off the mortgage and sells the home to an NFP for $50,000, a contribution of $100,000 is inherent in the transaction.
In a bargain purchase transaction, the approach illustrated in AAG-NFP 5.43 for measuring the contribution element requires the NFP to compare the fair value of the asset(s) received to the amount of consideration it transfers in exchange. The excess represents contribution revenue that is accounted for in accordance with the “Contributions Received” subsections of ASC 958-605.
PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
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