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Title: Section 442.10 - Basis of valuation

442.10 Basis of valuation. (1190) (a) Historical cost is the basis used in accounting for the valuation of all assets and in recording all expenses (except fair market value in the case of donations and imputed value in the case of nonpaid workers). Historical cost, simply defined, is the amount of cash or cash equivalents given in exchange for properties or services at the time of acquisition. It is the basis for the valuation of assets and for the recording of most expenses. Cost ordinarily has been the basis for accounting for assets and expenses because it is a permanent and objective measurement that reflects the accountability of management for the utilization of hospital funds.

(b) Hospitals, however, frequently acquire property, equipment, services and supplies by donation. The property, equipment, service and/or supply is considered donated when acquired without the hospital making any payment for it in the form of cash, property or services. The property, equipment, service and/or supply should be valued at the fair market value which is the price that the asset would cost by bona fide bargaining between well-informed buyers and sellers at the date of donation (regardless of date of receipt). Failure to give accounting recognition to donated properties and services results in an understatement of hospital assets, revenues and expenses.

(c) Many hospitals receive the services of members of an organization of nonpaid workers that has arrangements with the hospital for the performance of services. The services are in positions customarily held by full-time employees, and are performed on a regularly scheduled basis. The fair value of donated services must be reported when there is the equivalent of an employer-employee relationship and an objective basis for valuing such services. The value of services donated by organizations must be evidenced by a contractual relationship which provides the basis for valuation. The amounts reported are not to exceed those paid others for similar work.

(d) The value of services of a type of which hospitals generally do not remunerate individual's performances are not included as operating cost (e.g., donated services of individuals such as volunteers and trustees).


VOLUME C (Title 10)