NFP Transfers of Assets and Other Accounting Issues Flashcards
Fact: an important issue in NFP accounting is the accounting for asset transfers to other NFPs, such as foundations, and the circumstances under which those transfers should be accounted for as:
a contribution, a liability, or a change in interest in net assets
Financially interrelated organizations
they are defined as organizations related by both of the following characteristics:
one organization has the ability to influence the operating and financial decisions of the other & one organization has an ongoing economic interest in the net assets of the other
Recipient accounting
a NFP is a recipient entity when it accepts asset from a resource provider and agrees to use the assets on behalf of, or transfer the assets to, a specified beneficiary; the accounting by the recipient entity depends on whether the recipient has variance power and whether the recipient and the beneficiary are financially interrelated
not financially interrelated - without variance power: an organization that accepts assets from a resource provider and agrees to use or manage them on behalf of a specified beneficiary without variance power and without any financial interrelationship accounts for assets by valuing them at fair value and recognizing a liability to the beneficiary; assets transferred to recipient organizations are not contributions and are accounted for as liabilities when any one of the following conditions are met: the resource provider can…change the beneficiary, the asset transfer is conditional, controls the recipient organization, and specifies itself or its affiliate as the beneficiary
not financially interrelated - with variance power: when there is no financial interrelationship between the recipient and the beneficiary, an organization that accepts assets from a resource provider and agrees to se or manage them on behalf of a beneficiary follows donee accounting if it is granted variance power, the unilateral authority to redirect assets to another beneficiary; assets are at fair value and are recognized as a contribution when received and expensed when distributed to the beneficiary
financially interrelated - with or without variance power: an organization financially interrelated with a beneficiary that accepts assets from a resource provider and agrees to use or manage them on behalf of a beneficiary follows donee accounting; regardless of whether variance power is granted, assets are at fair value and are recognized as a contribution when received and expensed when distributed to the beneficiary
Beneficiary accounting
specified beneficiaries recognize their rights to assets held by the recipient unless the recipient is explicitly granted variance power; rights, when recognized, will b recorded as a receivable and contribution, a beneficial interest, or a change in interest in the net assets of the recipient
in cases that do not involve financial interrelationship or beneficial interests, the beneficiary recognizes a receivable and a contribution consistent with treatment of all unconditional promises to give
beneficiaries recognize a beneficial interest in an unconditional right to receive specified cash flows from a pool of assets as contribution revenue, or when donations held by the recipient are nonfinancial
beneficiaries recognize a change in their interest in the net assets of the recipient when the organizations are financially interrelated
Endowment funds
they are used to account for assets established to provide income for the maintenance of a NFP and may be classified as either net assets without donor restrictions or net assets with donor restrictions; issues surrounding endowment funds typically relate to their durations, the source of any restriction on them (internal or external), and the accounting issues related to the treatment of changes in value
endowment funds may be established in perpetuity or for a specified period of time
although endowment funds may be established by a governing board from resources without donor restrictions, they are generally established by a donor-restricted gift; types of endowment include:
board-designated endowment funds - created by a NFP’s governing board by designating a portion of its net assets without donor restrictions to provide income for a long but not necessarily specified period of time
donor-designated endowment funds (most common) - created by a donor stipulation requiring investment of the donor’s gift in perpetuity or for a specified term
a NFP would report an endowment fund in the statement of financial position in one of the following two classes of net assets based on the existence or absence of donor-imposed restrictions: net assets with donor restrictions & net assets without donor restrictions
Basis of assets
purchased fixed assets are carried at cost, as required by GAAP; donated fixed assets are recorded at fair value at the date of the gift; depreciation is recorded in accordance with GAAP for nongovernmental NFPs; however, works of art and historical treasures are not depreciated
Transfers of assets to a NFP that raises or holds contributions for others
first, you must determine if the organizations are unaffiliated or financially interrelated; then you must determine if the recipient has variance power (recipient can distribute money/asset to whatever beneficiary they want) or no variance power (they must give the money/asset to a specific beneficiary)
unaffiliated / variance power = recipient recognizes a contribution while the beneficiary recognizes nothing
unaffiliated / no variance power = recipient recognizes a refundable advance liability while the beneficiary recognizes contribution
interrelated / variance power = recipient recognizes a contribution while the beneficiary recognizes nothing
interrelated / no variance power = recipient recognizes a contribution while the beneficiary recognizes change in net assets
conditional promises are not recognized; no entry would be made by either the recipient or the beneficiary
