ANALYSIS OF FASB 116
(Financial Accounting Standards Board)
"ACCOUNTING FOR CONTRIBUTIONS RECEIVED AND CONTRIBUTIONS MADE"
Financial Accounting Standard Board Pronouncement No. 116 "Accounting for Contributions Received and Contributions made" covers all entities that receive or make contributions.
Some key definitions included in the statement are:
- Contributions - An unconditional transfer of cash or other assets to a not-for-profit entity or the settlement or cancellation of its liabilities in a voluntary nonreciprocal transfer by another entity acting other than as an owner.
- Promise to Give ("pledge") - A written or oral agreement to contribute cash or other assets.
- Donor - Imposed Condition - A future or uncertain event whose occurrence or failure to occur can result in the return of the assets transferred to the promisor or the release of the promisor from an obligation to transfer assets.
- Donor - Imposed Restriction - A stipulation and limitation in the use of contributed assets. These restrictions can be limited as to purpose, time, or both.
Contributions received; including unconditional promises, should be recognized as revenues in the period received. For purposes of the Statement of Financial Position, they should be recorded as increases in assets or decreases in liabilities and as either restricted support or unrestricted revenue:
- Contributions without donor-imposed restrictions are reported as unrestricted support and increases in unrestricted net assets.
- Contributions with donor-imposed restrictions are reported as restricted support unless these restrictions are met in the same reporting period.
- Receipts of unconditional promises to give in which the payments are due in future periods, generally are reported as restricted support. Generally, receipts of unconditional promises to give cash in the future would be presented as an increase in temporarily restricted net assets and would be present valued.
- Restricted support should be reported as permanently restricted net assets or temporarily restricted net assets, as appropriate.
- Gifts of long-lived assets received, without stipulations about how long the donated asset must be used, are reported as restricted support if it is an organization's accounting policy to imply a time restriction that expires over the useful life of the donated assets.
- Contributions with donor-imposed conditions are recognized as assets; and accounted for as refundable advances until the conditions are met at which time revenue is recognized.
- Contributed services are recognized only if the services received create or enhance nonfinancial assets or require specialized skills, are provided by those individuals possessing those skills, and would have to be purchased if they were not provided by donation.
- Contributions, as a general rule, are measured at the fair value on the date received. For contributed services, the fair value may be determined based upon the fair value of services received or fair value of asset or asset enhancement resulting from the service.
- Unconditional promises to give cash should be measured at the present value of the estimated future cash flows, with subsequent interest accruals recognized as contribution income.
- The expiration for donor-imposed restrictions should be reflected when the stipulated time has elapsed or stipulated purpose has been fulfilled. Such expirations of donor-imposed restrictions are reported as reclassification (between temporally restricted and unrestricted) and are reported separately from other operating transactions.
- Contributions of works or art or collection items may be recognized and capitalized if certain conditions are met.
FASB 116 was issued in June 1993 and has an effective date for fiscal years beginning after December 15, 1994. For those not-for-profits organizations that have less than $5 Million in total assets and less than $1 Million in annual expenses, the effective date is delayed until fiscal years beginning after December 15, 1995.
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