Donated capital definition
/What is Donated Capital?
Donated capital is assets given to an entity as a gift. This amount is recorded at its fair value as of the date when the gift was received. Donated capital is usually received by non-profit entities, since donors are more likely to provide them with assets. However, it is possible for a for-profit entity to receive donated capital, as noted in the following example.
Example of Donated Capital
Here are two examples of donated capital:
Land donation. A manufacturing facility receives a parcel of land as a gift from a local community when the business agrees to construct a facility there. The company’s controller has an appraiser determine the fair value of the land parcel, and records this amount in the firm’s accounting records.
Equipment donation. A technical school received machinery from a donor for student training purposes, which adds value to the school’s assets without requiring a cash outlay. The school’s accountant records this donation at its fair value.
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FAQs
Can Donated Capital Be Withdrawn by the Contributor?
Donated capital cannot be withdrawn by the contributor once it has been given to the company. Unlike a loan or payable, it becomes a permanent part of shareholders’ equity. The contribution is considered irrevocable and remains with the company to strengthen its financial position.