62 STUDY GUIDE Flashcards
2121.01
Several key features should be noted with respect to the statement of financial position (balance sheet):
Assets and liabilities are reported in reasonably homogeneous groups and sequenced or classified in ways that provide relevant information about their interrelationships, liquidity, and financial flexibility.
Net assets are classified into two required categories: net assets without donor restrictions and net assets with donor restrictions. Not-for-profit entities (NFPs) must disclose the components of their net asset classes based on external donor restrictions and internal board designations. Board designations on net assets (without donor restrictions) must be disclosed.
Net assets with donor restrictions: The part of net assets of a not-for-profit entity that is subject to donor-imposed restrictions
Net assets without donor restrictions: The part of net assets of a not-for-profit entity that is not subject to donor-imposed restrictions
NFPs must provide information about the nature and amounts of the different types of donor-imposed restrictions either by providing separate line items within net assets with donor restrictions or in notes to the financial statements to distinguish between various types of donor-imposed restrictions. Examples include restrictions related to (1) support of particular operating activities; (2) use in a specified future period; (3) the acquisition of long-lived assets; (4) investment for a specified term; (5) the creation of a donor restricted endowment that is perpetual in nature; and (6) assets, like land or works of art, that are donated with stipulations that they be used for a specified purpose, be preserved, and not be sold.
NFPs must also disclose the amounts and purposes of board-designated net assets either on the face of the statement of financial position or in the notes.
2121.01
2121.01
Cash, investments, and other assets restricted for plant asset purposes are reported as a separate line item (distinguished from other cash and investments, etc.). Likewise, cash, investments, and other assets restricted for endowment purposes are reported as a separate line item.
Contributions receivable for unconditional contributions are reported at the present value of the expected cash flows from contributions, except that those collectible within a year may be recorded at net realizable value. Contributions are unconditional promises to reduce liabilities of or to contribute assets to an organization. Conditional promises to give are not recorded as contributions receivable until the conditions are met or the likelihood of their not being met becomes remote. Should a contribution be conditioned on an uncertain event, the receipt should be recorded as a refundable advance.
2121.01
2121.01
The FASB issued ASU 2018-08, Not-for-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made, to facilitate in determining whether a transaction should be accounted for as a contribution or as an exchange transaction. The guidance applies to all entities that receive or make contributions, including business entities.
An NFP organization would determine whether a resource provider is participating in an exchange transaction by evaluating whether the resource provider is receiving value in return for the resources transferred. This will result in most NFPs accounting for federal grants as donor-restricted conditional contributions rather than as exchange transactions (the prevalent practice prior to ASU 2018-08). The simultaneous release option (if elected) allows grants received and used within the same period to be reported in net assets without donor restrictions, consistent with where the grant revenue was previously reported.
In instances where the resource provider is not receiving commensurate value for the resources provided, an organization would determine whether a transfer of assets represents a payment from a third-party payer on behalf of an existing exchange transaction between the recipient and an identified customer (e.g., Medicare). If so, other guidance would apply (for example, the revenue recognition standard).
Another area of difficulty addressed by ASU 2018-08 is determining whether a contribution is conditional (income recognition is deferred) or unconditional (income is immediately recognized). A contribution is conditional if the agreement includes:
a barrier that must be overcome (e.g., a measurable performance-related barrier, stipulations that limit discretion by the recipient on the conduct of the activity, and/or whether a stipulation is related to the purpose of the agreement).
either a right of return of assets transferred or a right of release of a promisor’s obligation to transfer assets.
An agreement that contains both of these items is a conditional contribution. An agreement that omits one or both is unconditional.
2121.01
2121.01
2121.01
2121.01
