This document provides an overview of topics covered in Week 6 of an accounting course, including accounting for contributions, activities with joint costs, and indirect cost allocation. It discusses when contributions should be recorded, donor restrictions, accounting for contributed services and non-cash contributions. For activities with joint costs, it describes the criteria for allocating costs between informational and fundraising activities. It also outlines methods for indirect cost allocation to determine full program costs.

1. ACCT101 Accounting and
Financial Management
Week #06
ACCT101-Week06 1

2. WEEK 06 - TOPICS
• Review of the Previous week activities
• Accounting for Contributions
• Accounting for Activities with Joint Cost
and Indirect Cost Allocation (Chap 5)
• Direct and Indirect Allocation
• Status of the Course Project
ACCT101-Week06 2

3. Accounting for Contributions
When contributions should be
recorded
Understanding the impact of donor
restrictions on the reporting of
contributions
Accounting for contributed services
Accounting for noncash contributions
Pass-through contributions
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4. When Contributions Should Be
Recorded
• SFAS 116, Accounting for Contributions Made
and Contributions Received
• Definition
“A contribution is an unconditional transfer of cash or
other assets to an entity or a settlement or cancellation
of its liabilities in a voluntary nonreciprocal transfer by
another entity acting other than as an owner . Other
assets include securities, land, buildings, use of facilities
or utilities, materials and supplies, intangible assets,
services , and unconditional promises to give those
items in the future.”
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5. When Contributions Should Be
Recorded
• 1.Unconditional transfers- no donor imposed conditions
on whether or not the not-for-profit gets to keep the
assets. There is no right of return of the asset. ( See
example page 67)
• 2. Conditions, not restrictions
• 3. Conditions- record the asset as received and the
offset is deferred revenue- SOFP, not SOA
• 4.Unconditional Promises to Give- promise becomes the
contribution. record the asset a pledge and the offset is
revenue.
ACCT101-Week06 5

6. Unconditional Promise to Give
• Definition: ” A written or oral agreement to
contribute cash or other assets to another entity;
however, to be recognized in the financial
statements there must be sufficient evidence in
the form of verifiable documentation that a
promise was made and received. A
communication that does not indicate clearly
whether it is a promise is considered an
unconditional promise to give if it indicates an
unconditional intention to give that is legally
enforceable.”
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7. Unconditional Promise to Give
• 1.This a matter of judgment
• 2. Recorded at net present value
• 3. Business considerations in legally enforcing
this
• 4. Change in circumstances of donor
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8. Donor Restrictions
• Temporary
Donor imposed restriction that permits a not-for-
profit organization to use or spend donated
assets as specified. Temporary restrictions are
satisfied either by the passage of time or by the
actions of the organization.
• Permanent
Donor stipulates that resources be maintained
permanently, but permits the organization to use
or spend part or all of the income derived from
the donated assets.
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9. Accounting for Contributed
Services
• Record as Contribution Revenue with a
corresponding increase in fixed assets( i.e.
property, plant and equipment) or in an expense
if services received meet one of the following
criteria:
1. Create or enhance the value of a nonfinancial
asset
2. require specialized skills , are provided by
individuals possessing those skills, and would
typically be purchased if not provided by
donation.
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10. Accounting for Contributed
Services
• Examples: volunteers to assist in fulfilling its mission
• Legal services pro bono
• Consulting services for free
• Nonfinancial assets: renovate offices (see page.74-75)
• Specialized skills: accountants, architects, carpenters,
doctors, electricians, lawyers, nurses, plumbers,
teachers and other professionals, craftsmen.
• Based on FMV
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11. Accounting for Noncash
Contributions
• Examples-services, noncash assets,
forgiveness of liabilities
• More common noncash contribution is
investment securities. Others are real
estate, inventory, art collections, etc.
• Record at fair Market Value
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12. Pass-Through Contributions
• Organization basically serves as agent, trustee or
intermediary
• Question is : Should revenue and corresponding
expense be recorded as the funds raised are passed
through to the other organization?
• SFAS No. 136: Generally, recipient organization records
an asset and a liability for cash and financial assets
received measured by their FMV.
• If the recipient organization has variance power or the
recipient organization and the ultimate beneficiary are
financially interrelated ( as described by SFAS 136), then
recipient organization can record contribution and
expense.
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13. WEEK 06 - TOPICS
• Accounting for Activities with Joint Cost
and Indirect Cost Allocation (Chap 5)
• Direct and Indirect Allocation
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14. Accounting for Activities with Joint Cost and
Indirect Cost Allocation
Accounting Situation: A Cost Incurred by a
Not-for-Profit Organization Relates to Two
Different Activities
• Situation #1: An Informational Activity
Contains a Fund-Raising Appeal
• Situation #2: Indirect Cost Allocation to
Determine Full Cost of Program Activities
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15. An Informational Activity Contains a
Fund-Raising Appeal
• Guidance provided by the AICPA Statement of
Position No. 98-2, “Accounting for Costs of
Activities of Not-for-Profit Organizations and State
and Local governmental Entities That Include
Fund raising”
• Criteria
-Criteria must be met before any costs can be
allocated. If the criteria are not met, the entire
cost of the activity is classified as fund-raising
activity.
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16. An Informational Activity Contains a Fund-
Raising Appeal Criteria
Criteria Permitting Cost Allocation
• Purpose Criterion
Program Functions
Program Functions and Management and General Functions
• Audience Criterion
Audience Selection Reasons
• Content Criterion
Program
Management and General
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17. Allocation Methods
• Physical Unit Method
Cost allocated based on the physical material that make up the
joint cost (See page 117)
• Relative Direct Cost Method
Joint costs are allocated in relation to the direct costs of each
of the activities (See page 118)
• Stand-alone Cost Method
Joint cost is allocated to each components of the joint activity in
the ratio that estimates the costs that would have been incurred has the
joint activity been performed separately (See page 118).
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18. Indirect Cost allocation Plans
• Direct Costs-those expenses that can be specifically
attributed to a particular activity
( examples- salaries, supplies)
• Indirect Costs-all the expenses that are not direct costs
( examples-rent, utilities)
Approach-if administered under a particular contract or
grant
-indirect cost allocation acceptable to other party
-consistent and reasonable approach
Note: There are specific federal cost requirements for
grants under federal programs.
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