January 23, 2012
Week 5 Individual Textbook Assignment Chapter 12
1. Provide examples of resources that are temporarily restricted as to: (a) purpose; (b) time; and (c) the occurrence of a specific event. Provide an example of permanently restricted resources. a. Resources that are deemed restricted can be restricted as to a defined purpose by the donor. Such examples for restricted donations can be that it must be used for research, acquisition of defined assets, or for particular programs. b. Resources can also be restricted for time that it can be used. This is a term endowment, which states that the fund must remain intact for a specified period and after that time; it can be used for the expenditure. c. Resources can also be restricted pending the occurrence of a specified event. A good example of this is a life annuity. The principal of a life annuity must be used to provide income for its recipient. Until donor dies, the remaining amount of the annuity can be spent. 2. A not-for-profit organization receives a restricted gift. When, and in which type of fund, should it recognize the revenue? When, and in which type of fund, should it recognize the related expense? What is the reason for the apparent inconsistency between the fund types in which the revenues and expenses are reported? Contributions, which are restricted, are to be recognized as revenue in a restricted fund when the contribution is received. Expenses are to be recognized for unrestricted funds when the fund is used. As contributions are used and the restrictions are met, the resources can be released from restricted to unrestricted funds. According to the FASB, donors can only control how the contributed resources can be used. They have no control over the timing of such expenses or the any specific activities that the organization engages in.