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6.4 The basic accounting for contributions
Publication date: 27 May 2020
us NFP guide
The basic rules in accounting for contributions are summarized below.
- A contribution involves a donor, a donee, and a simultaneous transfer of benefit.
The donor or “resource provider” is the party that transfers the economic benefit. The donee or “resource recipient” is the party that receives those benefits. The transfer is recognized simultaneously by both parties (making this a “symmetrical” model) under ASC 958-605-25-2.
Excerpt from ASC 958-605-25-2
A contribution made and a corresponding contribution received generally are recognized by both the donor and the donee at the same time, that is, when made or received, respectively, or if conditional, when the barrier is overcome.
The donor might be a government agency, an individual, a corporation, a corporate foundation, or a not-for-profit grant-making foundation. The benefits transferred can be cash, noncash assets, services, promises to give financial resources or noncash assets in the future, or cancellation of liabilities.
- Contributions are recognized in the period that the simultaneous transfer of benefit occurs.
In accordance with ASC 958-605-25-2 (donee) and ASC 720-25-25-1 (donor), at that time, the recipient recognizes contribution revenue (an increase in its net assets) and the donor recognizes contribution expense. Note that if the contribution involves a promise to give, the transfer of benefit occurs in the period the promise is made (and accepted), not when the actual transfer of resources occurs. Exceptions related to the recognition of contributed collections and donated services are discussed in NP 7.
Excerpt from ASC 958-605-25-2
Contributions received shall be recognized as revenues or gains in the period received and as assets, decreases of liabilities, or expenses depending on the form of the benefits received.
Excerpt from ASC 720-25-25-1
Contributions made shall be recognized as expenses in the period made and as decreases of assets or increases of liabilities depending on the form of the benefits given.
- Contributions are measured at fair value by both donor and donee.
The fair value of the asset transferred or liability cancelled is the relevant measurement basis for contributions received (ASC 958-605-30-2) or made (ASC 720-25-30-1). Fair value measurement is required regardless of the nature of the contribution (e.g., services, noncash assets such as real estate or securities, a promise to give). AAG-NFP chapter 5 and its appendix contain extensive interpretive commentary on fair value measurement issues related to contributions. For an in-depth discussion of the principles of fair value measurement, see PwC’s Fair value measurements guide.
Excerpt from ASC 958-605-30-2
Contributions received shall be measured at their fair values.
Contributions made shall be measured at the fair values of the assets given or, if made in the form of a settlement or cancellation of a donee’s liabilities, at the fair value of the liabilities cancelled.
- Donor-imposed conditions result in deferral of revenue and expense recognition.
Conditions are barriers or hurdles established by the donor (including other types of contributors, such as makers of certain grants) that must be overcome before the recipient is entitled to the assets transferred or promised. Until that occurs, no gift has been received or made; instead, the gift is contingent. The contribution becomes unconditional (and is recognized by both parties) in the period that the donee substantially meets the condition or conditions associated with the grant. See NP 6.6 for further discussion.
- Donor-imposed restrictions on the use of gifts affect financial statement presentation, not recognition.
A donor may direct how and when a recipient will use their gift. Those instructions create legal restrictions that govern the use of the funds by the recipient. Donor-imposed restrictions do not affect the donee’s ability to recognize the gift. Instead, they affect how the gift is reported in the donee’s statement of activities (i.e., as an increase in net assets with donor restrictions or net assets without donor restrictions). See NP 6.7 for further discussion of the presentation implications for donees. The imposition of restrictions does not impact the donor’s reporting.
Question NP 6-1 addresses the timing of recognizing a grant payable.
Question NP 6-1
On December 31, Foundation's board votes to award $1 million of grants. The award recipients will be determined at a later date. Should Foundation accrue $1 million of grant expense/grants payable on December 31?
On December 31, Foundation's board votes to award $1 million of grants. The award recipients will be determined at a later date. Should Foundation accrue $1 million of grant expense/grants payable on December 31?
PwC response
No. ASC 958-605-25-2 states that a contribution made and a corresponding contribution received generally are recognized by the donor and donee at the same time—that is, when the nonreciprocal transfer of economic benefit occurs. Because the Foundation has not yet determined or notified the donees, no transfer of benefit has yet occurred.
Question NP 6-2 addresses donor/donee alignment.
Question NP 6-2
The contribution accounting model requires symmetrical accounting between a resource provider and a resource recipient. Must the parties communicate with each other to agree on the accounting for the transaction?
The contribution accounting model requires symmetrical accounting between a resource provider and a resource recipient. Must the parties communicate with each other to agree on the accounting for the transaction?
PwC response
No. GAAP provides the same guidance and recognition principles for both donors and donees to apply in making key accounting determinations, such as classification of transactions as exchange or nonexchange and conditional or unconditional. And, other than the requirement for both parties to have a mutual understanding of the terms of a contribution, GAAP does not require the parties to communicate the specific accounting conclusions reached. Specifically, a grantor can and should apply its own judgment regarding the timing of satisfaction by grantees of the barriers it imposed on the grant (discussed in NP 6.6.1); the grantor is not required to obtain information from the grantee confirming that a barrier has been met.
PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
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