B4002 - Chapter 12

Not-for-profit organizations (NFPOs)

Entities organized and operated exclusively for social, educational, professional, religious, health, charitable, or any other not-for-profit purpose, without transferable ownership interests.

Surplus

The amount of funds remaining at the end of the year in an NFPO's FS, which is subject to scrutiny and should be spent on the organization's objectives.

Restricted contributions

Contributions that come with specific restrictions on how the funds can be used, such as for a particular purpose or program.

Endowment

Contributions that are permanently restricted and cannot be touched, with the income generated from the endowment fund used to support the organization's activities.

Unrestricted contributions

Contributions that have no specific restrictions on how the funds can be used, allowing the organization to allocate them according to its mandate.

Tangible capital assets

Assets held by NFPOs, such as buildings or equipment, which should be capitalized in the statement of financial position and amortized as appropriate.

Collections

Works of art and historical treasures held by NFPOs for public exhibition, education, or research purposes, with proceeds from their sale used to acquire other items for the collection or care for existing ones.

Merger

A combination of two organizations where no party is characterized as the acquirer or acquiree, both parties participate in determining the terms of the combination, no consideration flows to a third party, the combined organization encompasses the purposes of the combining organizations, and there is no significant decline in the client communities served.

Control investment

An investment that gives an NFPO control over either profit-oriented organizations or other NFPOs.

Fund accounting

Accounting procedures used to keep track of restricted resources and convey information about the restrictions placed on an organization's resources, involving the segregation of resources into different funds.

Fund balances

The amount of net assets restricted for a specific fund's purpose.

General fund

Captures an agency's operating activities.

Deferral Method

Matches contribution revenues with related expenses.

Unrestricted contributions

Reported as revenue in the period received or receivable, without associated expenses.

Endowment contributions

Reflected in the statement of changes in net assets, as they will never have related expenses.

Restricted contributions

Matched against related expenses.

Contributions for future expenses

Deferred and recognized in revenue in the same periods as related expenses.

Handling of restricted contributions for capital assets

Depends on whether related expenses are associated with them.

Contributions for current period expenses

Recognized as revenue in the current period.

Contributions for depreciable assets

Recognized as revenue as the asset is being amortized.

Deferred contributions

Unamortized amount of capital assets donated or acquired with restricted contributions.

Different reporting methods

Substantially different FS presentation for contributions.

Donated Capital Assets, Materials, and Services

Required to be recorded at fair value (FV).

Donated depreciable asset

Reported as deferred contributions under the deferral method or as contribution revenue under the restricted fund method.

Reporting donated materials and services

Permitted if FV can be determined and if they would have been purchased if not donated.

Volunteer hours

Not recorded unless associated with wage expenses.

Analysis and Interpretation of Financial Statements

Cost per unit of output is a key ratio for many NFPOs.

Solvency

Looks better using all funds under the restricted fund method.

Debt-to-equity ratio

Usually higher under the deferral method due to reported deferred contributions.

Disclosure Requirements

Extensive requirements for NFPOs.

Main disclosures related to revenue from contributions

• Contributions by major sources

• Policies for endowment contributions

• Restricted contributions and contributed materials and services

• Changes in deferred contribution balances

• Recognition of net investment income from endowment resources