The child was struck with the toy at Malin Head Community Centre in November 2012, Letterkenny Circuit Court was told.
Barrister Peter Nolan told the court that the six-year-old boy was injured at a time when the centre was unsupervised by an adult.
He had suffered “a very serious head injury” which had now left “a permanent 2cm scar” on the boy’s forehead.
A report by a consultant plastic surgeon said that the boy would have a “mild disfigurement” for life as a result of the incident.
The barrister told Judge Keenan Johnson that the community centre’s insurers had offered €15,000 in compensation, but having examined the boy’s facial scar, the judge said this was not enough.
The insurance company later agreed to raise its offer to €20,000 – as suggested by the judge – and the settlement was agreed.
The money will be kept in a courts account until the boy reaches the age of 18.