NFP Exam 2 - Revenue, Gains, and Support

Revenues

Increases in net assets arising from exchange transactions in which

the other party to the transaction receives direct tangible benefits relative to the

resources provided

Revenue Examples

Membership dues, program service fees, fundraising proceeds, sales of

supplies and services, promises to give, investment income, some grants

Gains

Increases in net assets that relate to peripheral or incidental transactions of

the entity and often are beyond the control of management

Gains Examples

Realized gains on investment transactions; gains on sale or disposal of

equipment

Support

A category of revenues arising from nonexchange transactions and

includes only amounts for which the donor receives no tangible benefits

two types of support

• Two Types:

1. Contributions – support in the form of cash, other assets or services

2. Pledges – the promise of a contribution

two characteristics of support

• Two unique characteristics:

1. Conditional vs Unconditional

2. Restricted vs Unrestricted

Contributions

support in the form of cash, other assets or services

Pledges

the promise of a contribution

Conditions vs Restrictions

• Conditions dictate what a recipient must achieve or accomplish in order to initially

recognize a grant or contribution (that is, to be entitled to the resources).

• After the grant or contribution has been recognized, restrictions, if any, stipulate how or

when the donated resources must be used

When can an NFP recognize a contribution as revenue?

Only when it is unconditional.

What two criteria must be met for a donor-imposed condition to exist?

(1) A right of return or release exists, and (2) the agreement includes a barrier that must be overcome by the NFP.

What are the three examples of a barrier in conditional contributions?

(1) Stipulations to conduct an activity (e.g., hire a specific individual), (2) meeting a measurable performance criterion (e.g., a specified level of service or outcome), and (3) meeting a condition for the purpose of the donation (e.g., reporting a summary of research grant results).

How is support received with a condition accounted for?

Set up a liability until the conditions are met, and then book revenue.

How is support received without a condition accounted for?

It is considered revenue

What must a not-for-profit (NFP) determine regarding support?

Whether the support has any donor-imposed restrictions

What is a purpose restriction?

A restriction requiring support to be for a certain use, such as $1,000 to be used for research.

What is a time restriction?

A restriction requiring support to be used in a certain time-frame, such as $1,000 to be used in three years.

How does support without any restriction on use affect net assets?

It increases net assets without donor restriction.

How does support affect net assets when a donor imposes a restriction on use?

It increases net assets with donor restriction.

What is a contribution in not-for-profit accounting?

A voluntary, unconditional, and nonreciprocal transfer of cash or other asset to the NFP (or a settlement or cancellation of its liabilities) by an entity external to the NFP.

What forms can contributions take?

Cash, securities, capital assets, materials, or services.

How does FASB require contributions with or without restriction to be recognized?

Recognized as support and at fair value at the time the gift is given.

What is the term for noncash contributions in not-for-profit accounting?

Gifts in Kind.

What are common examples of Gifts in Kind?

Clothing or furniture donations, free office space, and free advertisin

How does FASB require unconditional gifts to be reported?

They must be reported at fair value as both contribution revenue and an expense or a noncash asset.

How should donated materials consumed while providing services be reported?

They should be reported as part of the cost of services

When should contributed services be recorded as contributions and the asset/expense at fair value?

When they create or enhance nonfinancial assets, or when they are provided by individuals possessing specialized skills that typically would need to be purchased if not provided by donation

What is an example of contributed services that create or enhance a nonfinancial asset

A carpenter constructing a building

What are examples of specialized skills required for contributed services to be recognized?

Professionals such as accountants or nurses.

Does donated advertising meet the "need to be purchased" criterion for recognition

No, advertising does not meet the "need to be purchased" criterion.

What is a pledge in not-for-profit accounting?

A promise to give assets to an organization

What do unconditional pledges depend on?

They depend only on the passage of time or demand by the promisee for performance.

When should unconditional pledges be recorded as support?

In the period the promise is made.

How are unconditional promises to give that will not be received until future periods generally reported?

As net assets with donor restrictions.

What defines a conditional pledge?

It depends on a future and uncertain event that must occur for the pledge to become binding.

When should conditional pledges be recorded as support?

They should not be recorded as support until the conditions are substantially met.

What is a common example of a conditional pledge?

A matching pledge where the donor promises to give an amount to a not-for-profit if the organization raises a matching amount from other sources

How can unconditional pledges received in less than a year be reported?

They can be reported at net realizable value, with an adjustment at year-end for any estimated uncollectible amount.

How are long-term unconditional pledges generally recorded?

They are generally recorded at fair value.

How is the present fair value of future receipts determined for long-term unconditional pledges?

By applying fair value criteria to determine the present fair value of future receipts

How is the difference between the face pledge amount and the fair value amount recorded for long-term pledges?

It is recorded as a discount that is amortized as the pledges are received

At what value are land, buildings, and equipment recorded at the time of donation?

They are recorded at fair value at the time of donation.

Can contributed land, buildings, and equipment carry restrictions?

Yes, they may be either donor restricted or unrestricted.

When are donor restrictions on buildings and equipment generally assumed to have expired?

They are assumed to have expired when the asset is placed in service, unless donor restrictions limit the use of the asset for a specific period of time or for a specific purpose

What are special events in not-for-profit accounting?

Fundraising activities that provide a direct benefit to those attending.

When does a payment to attend a special event include a contribution element

When the contribution/amount paid to attend is greater than the cost or expense of the direct benefit

What are common examples of special events?

Dinners, dances, golf outings, fashion shows, and concerts

How does FASB require revenues from special events to be reported?

At gross (fair value of benefits received plus any amount received above fair value), unless the event is peripheral or incidental to the NFP.

How should direct expenses of providing the benefit be reported?

They must be reported separately.

How are expenses related to promoting and conducting special events reported?

As fund-raising expenses, so they are not charged against special events revenues

What role does an intermediary serve when assets are transferred between a donor and a beneficiary?

It serves in a fiduciary capacity by helping with the transfer of assets

How does an intermediary generally record a donation received on behalf of another organization?

It records both an asset and a liability

When is contribution revenue recognized when using an agent or intermediary?

It is recognized if the agent or intermediary has variance power or is interrelated to the beneficiary organization.

What defines variance power for an agent or intermediary?

Variance power exists when the agent or intermediary has the ability to redirect the assets it receives to an entity other than the beneficiary organization

What two conditions must be met for entities to be considered financially interrelated?

• One of the entities has the ability to influence the operating and financial decisions of the other entity.

• One of the entities has an ongoing economic interest in the net assets of the other.