What is a Nonreciprocal Transfer?

A nonreciprocal transfer occurs when an asset is given to a third party with no expectation of payment in exchange. This usually involves a charitable donation to a nonprofit entity. Nonreciprocal transfers also occur between countries, where advanced economies issue grants or other types of assistance to developing countries, without any expectation of being paid back. For example, a number of wealthier countries routinely make payments to Malawi, since it is one of the poorest countries in the world and therefore perpetually in need of aid.

There can be some non-financial benefits for donors when nonreciprocal transfers take place. For example, a country that issues grants might expect some support from the receiving government in regard to certain international initiatives, or favorable votes in the United Nations.

Accounting for a Nonreciprocal Transfer

A nonreciprocal transfer is typically accounted for as a contribution. The recipient of this transfer records the received asset at its fair value on the transfer date. The initiator of the transfer records the asset disposition at its fair value, which may result in the recognition of a gain or loss.