January 14, 2012
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. An example of resources that are temporarily restricted to purpose might include those that are used for the purchase of plant and equipment, or used for research purposes. Resources that may be temporarily restricted to time might be term endowments by which only the income is going to be available for expenditure for a specific time period. Resources that are temporarily restricted as to the occurrence of a specific event might include annuities which are considered to be gifts that will provide the donor with income until his/her death. An example of permanently restricted resources would be endowments. These could be a lump sum of cash, investments, or any other form of assets that could be received as gifts by which only income could be expended. 2. A not-for-profit organization receives a restricted gift. When, an in which type of fund, should it recognize 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? The revenue should be recognized in a temporarily restricted fund and it should be recognized in the period that it was received in. The related expense should be recognized in the current operating fund when the restriction has been met or expired. The reason for the apparent inconsistency between the fund types is due to the restricted nature of the gift, and that the expenditure of the resource is usually not recognized in the same accounting period.
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