F6 - M4 - Not for profit transfers of assets and other accounting issues

Question 1

In non profit accounting, was is recipient accounting?

Answer 1

Recipient accounting is when a non profit agrees to use the assets provided to them on behalf of a beneficiary, or they agree to transfer the assets to a beneficiary.

There are two factors that must be understood in order to determine what kind of accounting the recipient will use.

Weather they are financially interrelated or whether the recipient has variance power. That means that the recipient can change the original wishes of the resource provider. They can say, don’t give it to this person, give it to this one.

Question 2

For recipient accounting, what is the journal entry for receiving the asset if they are not financially interrelated and there is no variance power?

Answer 2

When this happens, the non profit is simply just holding the asset for the beneficiary or uses it for the beneficiary. Or they plan on transferring it at a certain point in time. They really get no benefit, so the entry is as shown:

Debit: Asset (at fair value)
Credit: Refundable advance liability

Question 3

For recipient accounting, what is the journal entry for receiving the asset if they are not financially interrelated but there is variance power?

Answer 3

Since they have more power on where this money goes, you credit a contribution and not an asset.

DR: Asset
CR: Contribution

Question 4

For recipient accounting, what is the journal entry for receiving the asset if they are financially interrelated but there is or is not variance power?

Answer 4

If they are financially related, the variance power question then does not matter. The entry can be found below:

DR: Asset
CR: Contribution

Question 5

For beneficiary accounting, what is the journal entry for receiving the asset if they are not financially interrelated and there is no variance power?

Answer 5

Debit: Rec
Credit: Contribution

Question 6

For beneficiary accounting, what is the journal entry for receiving the asset if they are not financially interrelated but there is beneficial interest?

Answer 6

Debit: Beneficial interest
Credit: Contribution

Question 7

For beneficiary accounting, what is the journal entry for receiving the asset if they are financially interrelated but there is or is not variance power?

Answer 7

Debit: Interest in recipient net assets
Credit: Change in interest in recipient net assets

Question 8

What is a quasi endowment fund?

Answer 8

These are endowments where the internal board placed the funds as an endowment rather than a restriction.

Question 9

What is an underwater endowment?

Answer 9

This is a donor-restricted endowment fund for which the fair value of the fund is less than,

the original gift amount, of the amount required to be maintained by the donor or the law.

For example, if the donor gave you 10,000,000 and said, this can never go below 7,000,000. If it does, that is an underwater endowment.

This needs to be disclosed in the financial statements.

Question 10

What is the “FED” acronym?

Answer 10

This is the acrynym to help you remember what must be disclosed for underwater endowments.

Fair value - of the under water endowment

Endowment’s gift original amount

Deficiency - The amount it went down by