2012-05-29 Contributions & Net Assets

Accounting for
Contributions and Net
Assets ASC 958

Jean Gilbert, CPA, Senior Manager
May 29, 2012

Thrive. Grow. Achieve.

OBJECTIVES

• Discuss key revenue sources unique to nonprofit organizations.
• Differentiate between contributions, exchange and agency transactions and how
to apply appropriate accounting treatment.
• Review documentation to determine how contributions should be classified.
• Apply key accounting principles related to net assets including, differentiating
among unrestricted, temporarily restricted, and permanently restricted net
assets.

Acct for Contributions ASC 958 / Page 2

IDENTIFYING NONPROFIT REVENUE
TRANSACTIONS

• Does the income received represent a contribution, revenue in exchange?
• Does the income received represent a pass-through?


DEFINITIONS

• Unconditional and voluntary transfer of
cash or other assets or services to an
Contribution
Transaction entity, or a cancellation of liabilities in a
voluntary nonreciprocal transfer by an
entity acting other than an owner

• Reciprocal transfer between two entities
Exchange that are in substance purchases of goods
Transaction or services in which each party receives
and sacrifices commensurate value.

• Transfer of assets to an organization
Agency
who, in turn, must transfer the assets to a
third-party donee according to the donor's
instructions.


IDENTIFYING NONPROFIT REVENUE
TRANSACTIONS

• Are there restrictions or conditions to the contribution?

• Are there promises of future support? If so is it conditional or unconditional?


CONTRIBUTION DEFINITIONS

• Funds donated for no specific
Unrestricted purpose other than to support the
organization

Temporarily
restricted for
• Promises to give to be paid over
time more than one accounting period

Temporarily • Funds donated to be used for a
restricted specific purpose, usually over a
for purpose
period of time


CONTRIBUTION DEFINITIONS

• Funds donated to be held in
perpetuity, with the intent that the
Permanently
restricted income derived from the funds
would support the organization or a
specific program

• Usually specifies a future and
Conditional
uncertain event and the occurrence
or non-occurrence determines if the
organization will receive funding


PROMISES TO GIVE

• Sufficient verifiable evidence should exist to document that a promise was
made by the donor
̵ Written agreement
̵ Pledge card
̵ Oral promises documented by letters, tape recordings, emails, etc.
• Does not need to be legally enforceable in order to be recorded


CONTRIBUTION REVENUE

• Sufficient verifiable evidence should exist to document that a promise was
made by the donor
̵ Written agreement
̵ Pledge card
̵ Oral promises documented by letters, tape recordings, emails, etc.
• Does not need to be legally enforceable in order to be recorded


CONTRIBUTION REVENUE

• Contributions
• Bequests
• Pledges
• Sponsorships (some exceptions)
• Sponsored programs
• Change in PV Discount


EXCHANGE REVENUE

• Registrations
• Application Fees
• Tuition
• Sales
• Advertising


REVENUES WITH CHARACTERISTICS OF
BOTH CONTRIBUTION AND EXCHANGE
TRANSACTIONS

• Associations and membership dues
• Federal grants
• Sponsorships
• Special events revenue


IS IT A CONTRIBUTION: PART I

Unconditional? Contribution
yes

no

Either not recorded or
recorded as a liability if
physical assets have
been transferred to
non-profit


IS IT A CONTRIBUTION: PART II

Nonreciprocal (value
received in
Voluntary?
yes exchange is nominal
or nonexistent)?

yes
Might be a
Not a contribution contribution:
“Other” additional testing
required


CONTRIBUTION OR EXCHANGE
TRANSACTION?


CONTRIBUTION OR AGENCY
TRANSACTION


REVENUE RECOGNITION

Contribution
• Recognized in
period received

Exchange
• Recognized in
period earned

Agency • Not recognized


RECOGNITION PRINCIPLES FOR
PROMISES TO GIVE

• Pledges or contributions receivable
What? • Written or oral

When? • At the time the promise is made

• At fair value
• Temporarily restricted, unless:
• Donor stipulates it is permanently
How? restricted
• Donor states the contribution is to
be used for current or prior period


CONTRIBUTIONS

PROMISES TO GIVE

• In the example below, as of December 31, 2009, there are three pledges receivable, each
one payable under different terms.

– Donor 1: is promising $5.9 million over 3 years
– Donor 2 is promising $5,000 in 2013
– Donor 3 is promising $20,000, in equal installments in 2012 and 2013.
– Each donor has a history of giving with the organization, and pays as agreed


PROMISES TO GIVE: FAIR VALUE

Journal entry 12/31/2009 DR CR
Promises to give $5,925,000
PV Discount $ 542,860
Contribution, Temporarily Restricted 5,382,140



Journal entry Adjust PV-12/31/2010
PV 2009 542,860
DR CR
PV 2010 273,753
PV Discount $269,107
Contribution, Temporarily Restricted $269,107 JE 269,107



Journal entries DR CR
3/31/2011
Cash 2,000,000
PV 2010 273,753
Promises to give 2,000,000
TRNA released from restriction 2,000,000 PV 2011 91,190
Releases from restriction 2,000,000
12/31/2011 JE 182,563
PV Discount 182,563
Contribution, Temporarily Restricted 182,563


CONTRIBUTIONS (CONTINUED)
DONOR-IMPOSED CONDITIONS

• Asset transfer dependent on a future and uncertain event

Discussion 1
A donor promises to contribute $10,000 to a charity, if they are able to raise an additional
$10,000 in 10 days.
1. The charity raises $8,000 in 10 days – What do they book?
2. The charity raises $12,000 in 10 days– What do they book?

Discussion 2
A donor promises to contribute $1,000 to a school for every football game the team
wins.
1. When can they book the contribution?


• Intentions to Give
– Are conditional, therefore not booked

Discussion
•A donor says “I put you in my will for $1 million”
•A donor says “I promise to give you $1 million
when I die”
•A donor says “If I win the lottery, I’ll give you $1
million”

Are any of the above statements a
contribution, conditional, an intention?


• Contributed Services and Gifts in Kind
̵ Services that create or enhance a non-financial asset
̵ Would typically need to be purchased
̵ Require specialized skills
̵ Measured at fair market value (adequate documentation)

Discussion
•CPA provides carpentry services to aid with set design for
a local theater company (under supervision of carpenter)
•Doctor provides data entry services for a children’s soccer
league
•Board members review audit engagement letter


• Donor-imposed restrictions (purpose or time)

̵ No restrictions – Unrestricted
̵ If limitations are temporary; may expire over time or incurrence of expenditures –
Temporarily Restricted
̵ If limitations are permanent; corpus of the gift must be maintained permanently –
Permanently Restricted


NET ASSETS
• Unrestricted
– Designated-Boards can designate
• Temporarily Restricted
– Only donors can restrict
• Permanently Restricted


UNRESTRICTED NET ASSETS
• Donor places no restrictions or is silent to use of funds.
• Donor imposed restrictions should not be considered restrictions unless they are
more specific than the broad limits imposed by the organization’s purpose and
nature.
• Donors can impose restrictions on an organization’s unrestricted net assets which
would result in a reclassification of UR to TR.
• If organization meets donor-imposed restrictions in the same reporting period in
which received than maybe reported as UR (need policy).


UNRESTRICTED NET ASSETS
• Board Designations do not create restrictions on otherwise unrestricted net
assets:
̵ Only Donors can restrict.
̵ Boards can designate.
̵ Amounts can be segregated and displayed separately within the unrestricted net
asset section of the Statement of Financial Position.


TEMPORARILY RESTRICTED NET ASSETS
• If limitations are temporary; may be restricted for time or purpose.
• It is not possible to release more restricted amounts than available. Any
“overspending” of restricted net assets should be charged to UR.
• No expenses should be shown in TR – only releases from restrictions.
• Expiration of donor-imposed restrictions should be shown separately as
reclassifications.


CONDITIONS FOR RELEASES
• Payment received - Donor stipulated time has elapsed
• Donor stipulated purpose has been fulfilled.
• The expiration of donor-imposed restriction is recognized in the period in which
the stipulations have been met or expired.
• If expenses are incurred for purposes for which both UR and TR net assets are
available, use TR before UR.


PERMANENTLY RESTRICTED NET ASSETS
• Result from donor imposed restrictions that the inflow must be maintained
permanently.

• Usually part or all of the income resulting from investing the restricted revenue
may be used.


CLASSIFICATION PRINCIPLES FOR
INCREASES TO NET ASSETS

Discussion
•Donor promises to give $1 million over three years for
general operating expenses of an organization
•Investment revenue results in a an overall gain.
Organization has endowments.
•Organization’s board agrees to spend 5% of the
organization’s endowments.
•Donor gives $1 million for the charity to invest for 15 years,
and proceeds are to be used to fund a scholarship program
•Donor gives $1 million for the charity to invest in perpetuity,
and proceeds are to be used to fund a scholarship program

How would you classify each of these revenues?


NET ASSETS INS AND OUTS
Category “In” “Out”
Unrestricted •New donor contributions with •Operating activities
no restrictions as to their use expenses
•Operating income from •Investment declines
exchange transactions and •Other losses
other income •Endowment investments
•Assets released from restriction underwater
Temporarily •New donor contributions with •Assets released from
Restricted time or purpose restrictions. restriction due to fulfillment
•Income on permanently of time or purpose
restricted net assets and restriction.
endowments •Investment declines on
endowments/limited to
aggregated gains
Permanently •New donor contributions with •Changes by the donor to
Restricted the stipulation they must be release these funds from
invested in perpetuity. restriction.
•Possibly income on •Investment declines if
permanently restricted net designated by the donor
assets (i.e.: split-interest
agreements, trusts.)


QUESTIONS?


2012-05-29 Contributions & Net Assets

Recommended

Recommended

More Related Content

What's hot

What's hot (14)

Similar to 2012-05-29 Contributions & Net Assets

Similar to 2012-05-29 Contributions & Net Assets (20)

More from Raffa Learning Community

More from Raffa Learning Community (20)

Recently uploaded

Recently uploaded (20)

2012-05-29 Contributions & Net Assets

Editor's Notes