Question

A wealthy individual donated a valuable work of art to a museum. The museum intends to keep the work, protect it from harm and deterioration , and hang it in a location so all can see it. The accountant sees no need either to recognize the asset or depreciate it. However, one of the newer trustees, the chief executive of a large business entit, said, "In our company, we depreciate everything. And we know that, ultimately, everything turns to dust. So why don't we recognize the work of art as an asset and depreciate it? How should the museum account for the piece of art? Explain.

Answer 1

The donor here has donated the work of art and it is up to the museum whether it intends to capitalize it or not since there is no specific guideline by the FASB regarding the depreciation of museum art work. If they choose to capitalize it and there is strong evidence that the piece of art will loose its value over time, then the museum must decide to depreciate. However, if the museum can establish that it can preserve the art work indefinitely then it does not have to opt for depreciation.