Forest Hill Lodge Bingo Hall – Not-for-Profit Accounting (Deferral vs Restricted Fund)
Forest Hill Lodge: Bingo Hall - Not-for-Profit Accounting (Deferral vs Restricted Fund)
These notes summarize how to account for the bingo hall in two different methods for an NPO: the deferral method (no separate capital asset fund) and the restricted fund method (with a separate capital asset fund). All amounts are in CAD unless noted. The asset is a capital asset (bingo hall) with cost $1,200,000; it began operations on Sep 1. The useful life is 40 years, straight-line amortization. A restricted donation for maintenance ($50,000 total) was received, of which $15,000 was spent in the last four months of the year. The straight-line amortization per year is:
ext{Amortization per year} = \frac{1{,}200{,}000}{40} = 30{,}000
For the year, amortization from Sep 1 to Dec 31 (4 months) is:
ext{Amortization for the year} = 30{,}000 \times \frac{4}{12} = 10{,}000
Key numbers used below:
Cost of bingo hall: $1,200,000
Amortization (4 months): $10,000
Maintenance expense incurred: $15,000
Restricted donation for maintenance: $50,000 (of which $15,000 spent; $35,000 remaining)
No separate capital asset fund (deferral method) vs. separate restricted fund (restricted fund method)
Part A — Deferral method (no separate capital asset fund)
Conceptual summary
Restricted contributions for the capital asset are recorded as a liability (deferred contributions – capital asset) and used to acquire/construct the asset.
The capital asset is recorded at cost.
Amortization is recognized in the statement of operations, and a portion of the deferred contributions is released to the revenue line (recovery of deferred contributions) each period corresponding to amortization.
Restricted contributions for future maintenance remain as a separate restricted liability (deferred contributions – maintenance) until used; amounts expended reduce the liability.
A.1 Journal entries (current year)
1) Receipt of restricted contributions for construction (1,200,000 total: 600k donations + 600k government grant):
Dr Cash 1{,}200{,}000
Cr Deferred contributions — capital assets 1{,}200{,}000
2) Transfer to capital asset cost (recognize the asset at cost):
Dr Capital assets — Bingo hall 1{,}200{,}000
Cr Deferred contributions — capital assets 1{,}200{,}000
3) Receipt of restricted maintenance donation ($50,000) for future maintenance:
Dr Cash 50{,}000
Cr Deferred contributions — maintenance 50{,}000
4) Incurred maintenance expenditure ($15,000) for the bingo hall (restricted funds used):
Dr Maintenance expense 15{,}000
Cr Deferred contributions — maintenance 15{,}000
5) Amortization of the bingo hall for the year (4 months):
Dr Amortization expense 10{,}000
Cr Accumulated amortization — Bingo hall 10{,}000
6) Recovery of deferred contributions (recognize revenue as asset is amortized):
Dr Deferred contributions — capital assets 10{,}000
Cr Revenue — restricted contributions (capital asset) 10{,}000
A.2 Partial Statement of Financial Position (SFP) — as of Dec 31 (partial)
Capital assets: $1{,}200{,}000
Accumulated amortization: $10{,}000
Net capital assets: $1{,}190{,}000
Deferred contributions — capital assets: $0 (offset by asset recognition; balance released in step 2 and then the amortization release in step 6)
Deferred contributions — maintenance: $35{,}000 (remaining: $50,000 received minus $15,000 spent)
Net assets (unrestricted): to be inferred from the broader statement; here we show restricted components explicitly:
Invested in capital assets: $1{,}190{,}000
Restricted for maintenance: $35{,}000
Total net assets (partial): $1{,}225{,}000
A.3 Partial Statement of Operations (current year, summary)
Amortization expense: $10{,}000
Maintenance expense: $15{,}000
Revenue — restricted contributions (capital asset): $10{,}000
Net result for the year (restricted contributions impact): decrease in unrestricted net assets by $15{,}000 (assuming no other unrestricted contributions); overall net assets at year end reflect a net change influenced by the $10,000 recovery of deferred contributions and $25,000 in expenses.
A.4 Key implications (deferral method)
All capital asset funding is treated as a single restricted amount, released over time via amortization.
The 50,000 restricted for maintenance remains in a deferred contributions liability until maintenance is incurred; 15,000 of it has been spent, leaving 35,000 in the restricted liability.
No separate capital asset fund exists; all restricted funds flow through the general fund accounts.
Part B — Restricted fund method (separate capital asset fund to record both construction and maintenance contributions)
Conceptual summary
Separate restricted funds are used to track restricted contributions: a capital asset fund for construction contributions and a maintenance fund for restricted maintenance contributions.
The asset is still recognized on the main financial statements, but restricted funds are tracked in fund (restricted) accounts. Transfers between restricted funds and the main assets occur as appropriate.
Amortization and maintenance costs are reflected in the statements of operations; restricted funds are used to fund those costs and balances in the restricted funds adjust accordingly.
B.1 Journal entries (current year)
1) Receipt of restricted contributions for construction (1,200,000 total):
Dr Cash 1{,}200{,}000
Cr Restricted Capital Asset Fund 1{,}200{,}000
2) Transfer from restricted capital asset fund to capital asset (recognize asset at cost):
Dr Capital assets — Bingo hall 1{,}200{,}000
Cr Restricted Capital Asset Fund 1{,}200{,}000
3) Receipt of restricted maintenance donation ($50,000) into restricted maintenance fund:
Dr Cash 50{,}000
Cr Restricted Maintenance Fund 50{,}000
4) Incurred maintenance expense ($15,000) funded from restricted maintenance fund:
Dr Maintenance expense 15{,}000
Cr Restricted Maintenance Fund 15{,}000
5) Amortization of bingo hall for the year (4 months):
Dr Amortization expense 10{,}000
Cr Accumulated amortization — Bingo hall 10{,}000
B.2 Partial SFP — as of Dec 31 (partial)
Capital assets (bingo hall): Cost $1{,}200{,}000; Accumulated amortization $10{,}000; Net capital assets $1{,}190{,}000.
Restricted Capital Asset Fund: $0 (fund was transferred to capital asset cost in step 2)
Restricted Maintenance Fund: $35{,}000 (remaining: $50,000 received minus $15,000 spent)
Net assets:
Invested in capital assets: $1{,}190{,}000
Restricted maintenance fund: $35{,}000
Total net assets (restricted + invested): $1{,}225{,}000
B.3 Partial Statement of Operations (current year, summary)
Amortization expense: $10{,}000
Maintenance expense: $15{,}000
No separate revenue line for restricted capital asset contributions appears in unrestricted operations; the restricted capital asset fund balance supports the capital asset net of amortization.
Net decrease in unrestricted net assets (due to expenses) = $25,000; restricted funds remain available to fund capital asset depreciation and maintenance costs as appropriate, with a remaining restricted balance of $35,000 for maintenance.
B.4 Key implications (restricted fund method)
The capital asset funding and maintenance funding are tracked in separate restricted funds, improving visibility of restricted resources.
The asset is recognized on the main financial statements, while restricted funds reflect the source of funds for construction and maintenance.
Amortization reduces the asset value over time and, depending on policy, may be reflected as a transfer/recovery in restricted revenue or as part of the restricted fund accounting.
Quick comparison (highlights)
Deferral method: Use a single deferral for capital asset contributions; recognize revenue for the amortization (recovery of deferred contributions) as the asset is used; maintenance restricted funds stay as separate deferrals until used.
Restricted fund method: Use separate restricted funds (capital asset fund and maintenance fund); asset is still recognized, but restricted funds track the sources; maintenance and amortization are funded by restricted resources and reflected in both fund and general statements.
Formulas and key calculations (summary)
Amortization per year: ext{Amortization per year} = \frac{\$1{,}200{,}000}{40} = \$30{,}000
Amortization for four months (Sep–Dec): \$30{,}000 \times \frac{4}{12} = \$10{,}000
Maintenance funds remaining (restricted for maintenance): \$50{,}000 - \$15{,}000 = \$35{,}000
Net capital assets (end of year, after amortization): \$1{,}200{,}000 - \$10{,}000 = \$1{,}190{,}000
Total restricted net assets (partial): capital assets $1{,}190{,}000$ + maintenance fund $35{,}000$ = $1{,}225{,}000$
If you’d like, I can tailor the journal entries to a specific IFRS/ASNFPO framework or lay out the exact posting sequence for a class chart of accounts.