Here is the situation im trying to figure out. I work for a governmental agency, who in a joint effort maintains a road in conjunction with the local county. Our agency operates a for profit construction company, but also receives grants for various projects in which we do not recognize profit for.

A recent extensive road project costing several millions and funded by a grant was finally finished. During the process the county told us we could take as much sand as we needed from their gravel pit at no cost to us. Sand with a FMV of nearly $1M was taken for the project but in a case like this would normally be discounted in price by about 40% due to volume. My questions relates to the valuing of that inventory and if anything must be recorded for it. Technically it was obtained at no cost except for transportation cost covered by the grant. Must we recognize this donated product on our books and charge it back to the grant?
Thank you.