Donation Revenue for University
At what point should these pledges be recognized as revenue
The university should recognize the pledge as revenue in the period that the pledge was made if it had no donor-imposed circumstances (Chermak, 2004). Irrespective of the fact that the revenue will either be restricted on unrestricted depending on the stipulations of the donor, nevertheless, it is recorded as revenue although the money from the pledge will come in later, and the time period and purpose for which the grant was issued may as well take place in the future. The pledges are recognized as revenue if used for the purposes defined by the donor (Krishnan, Yetman, & Yetman, 2006). In this situation, there is no condition that comes with the pledges and, therefore, the donations will be recognized as revenue immediately they start operating to fulfill their intended purposes at the university. If there is any promise that comes with the pledge, then the pledge is considered as revenue when the promise is fulfilled (Chermak, 2004). During the time restricted for the pledge, it is a requirement that it be recorded as revenue for that specific organization (Krishnan, Yetman, & Yetman, 2006). All restricted pledges are recorded in the year that the pledge is made and, thus, this also applies for this case. Herein, the portion of all the pledges received in the year of the gift will be recorded as unrestricted support and increases the unrestricted net assets (Krishnan, Yetman, & Yetman, 2006).
How should the revenue be valued?
The revenue from pledges should be valued based on the required characteristics of the recipients, the time requirements, reinbursements, and contingencies (Krishnan, Yetman, & Yetman, 2006). The value of the revenue is determined by the sum total of all the pledges outstanding at the end of the financial year. The percentage is applied against the calculated present value to determine the total amounts that that be collectible. This percentage is calculated by determining the total amount of the pledges collected in the four years that the pledges were given. With the calculation of these percentages, then the value of the revenue can be determined (Chermak, 2004). The calculations of the present value are made through making significant assumptions that are made to approximate the amount of revenue sold. Through these calculations, the value of the total revenue can be determined. However, this can only be an approximate amount (Krishnan, Yetman, & Yetman, 2006).
How should these pledges be reported as change in net assets, and in which net assets class should they be reported?
The amount of change in permanently restricted net assets temporarily restricted net assets and the unrestricted net assets are recorded for the period that the pledges were given. Revenue expenses, gains, and losses increases or decrease net assets for that that the pledges have been given period (Krishnan, Yetman, & Yetman, 2006). To get the information about the revenues, expenses, gains, and losses are determined by all the aggregate items that have similar characteristics. These pledges should be reported in the unrestricted net assets because they do not have a condition that should be met with the pledges (Larkin, 1994). If pledges are accompanied with any condition, then these pledges are restructured either partly of completely. Because the pledges in this situation do not have a condition that should be fulfilled, then this means that these pledges are classified as unrestricted assets (Krishnan, Yetman, & Yetman, 2006).
References
Chermak, L. E. (2004). The law of revenue bonds (No. 142). National Institute of Municipal Law Officers.
Krishnan, R., Yetman, M. H., & Yetman, R. J. (2006). Expense misreporting in nonprofit organizations. The Accounting Review, 81(2), 399-420.
Larkin, R. F. (1994). Accounting issues relating to fundraising. New Directions for Philanthropic Fundraising, 1994(3), 27-48.
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