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6.7 Donor-imposed restrictions
Publication date: 27 May 2020
us NFP guide
Some contributions can be used by the recipient for any purpose. Others—referred to as donor-restricted contributions—must be used for specific purposes or in specific time periods that are prescribed by the donor.
In order to apply the decision-making framework in Figure NP 6-2 (in NP 6.5), it is important to understand how donor-imposed restrictions differ from the donor-imposed conditions (discussed in NP 6.5). Conditions dictate what a recipient must achieve or accomplish in order to initially recognize a grant or contribution (that is, to be entitled to the resources). As described in ASC 958-605-25-2A, after the grant or contribution has been recognized, restrictions, if any, stipulate how or when the donated resources must be used.
After a contribution has been deemed not to contain a donor-imposed condition (see paragraphs ASC 958-605-25-5A through ASC 958-605-25-5F), an entity shall consider whether the contribution includes a donor-imposed restriction, which includes the consideration about how broad or narrow the purpose of the agreement is and whether the resources can be used only after a specified date.
As discussed in NP 2, the net assets (equity) of an NFP consist of a restricted component and an unrestricted component. Revenue from donor-restricted contributions increases the restricted component, called net assets with donor-restrictions (see Example NP 6-7 in NP 6.7.1). This special component of net assets reflects resources that can only be used for purposes established by a donor. Those resources cannot be used to purchase goods or services or to settle liabilities that are outside the scope of the stipulations (and thus, are generally not available to the donee’s creditors).
6.7.1 What is a donor restriction?
Donor-imposed restrictions are defined in the ASC Master Glossary. They are legally binding on an organization that accepts a restricted gift. Management has a fiduciary obligation to ensure that the resources are used as directed by the donor, and state attorneys general have regulatory and enforcement powers to ensure that donors’ wishes are followed.
Definition from the ASC Master Glossary
Donor-imposed restriction
A donor stipulation that specifies a use for a contributed asset that is more specific than broad limits resulting from the following:
- The nature of the not-for-profit entity (NFP)
- The environment in which it operates
- The purposes specified in its articles of incorporation or bylaws or comparable documents for an unincorporated association.
Some donors impose restrictions that are temporary in nature, for example, stipulating that resources be used after a specified date, for particular programs or services, or to acquire buildings or equipment. Other donors impose restrictions that are perpetual in nature, for example, stipulating that resources must be maintained in perpetuity. Laws may extend those limits to investment returns from those resources and to other enhancements (diminishments) of those resources. Thus, those laws extend donor-imposed restrictions.
For accounting purposes, a donor-imposed restriction is a stipulation in a gift agreement that limits the use of contributed resources in a manner that is narrower than the limitation imposed by the recipient’s overall mission or purpose. For example, if a hospital receives a gift that is donor-restricted to caring for patients, that gift is regarded as unrestricted, because the hospital’s mission is to provide patient care. However, a gift designated for care of babies in the neonatal intensive care unit would be donor-restricted, because the specified use is narrower than the hospital’s mission.
Some donor-imposed restrictions last forever; they cannot be removed by actions of the organization or the passage of time. For example, a painting might be donated to a museum with the stipulation that it be added to the museum’s permanent collection. Or a donor might stipulate that a gift can never be spent, but instead must be invested in perpetuity to create an ongoing stream of investment return to support the entity’s activities (an endowment, discussed further in NP 10).
Other donor-restrictions limit the resource’s use to a specific purpose (for example, supporting a particular program activity or acquiring a capital asset) or to a future time period (for example, a gift for use in next year’s operations of a fixed term endowment which must be invested for five years before being spent). Once the stipulation is satisfied, the restriction expires. Purpose restrictions are satisfied when the donee spends the funds for the indicated purpose; time restrictions are satisfied by the passage of time.
As described in ASC 958-605-45-4, while most donor-imposed restrictions will be explicitly stated, some are implied (see AAG-NFP 5.76 to AAG-NFP 5.77).
Excerpt from ASC 958-605-45-4
A restriction on an NFP’s use of the assets contributed results either from a donor’s explicit stipulation or from circumstances surrounding the receipt of the contribution that make clear the donor’s implicit restriction on use.
The following are examples of circumstances in which a time or purpose restriction would be implied on a gift:
- If circumstances surrounding a gift make it clear that a donor implicitly restricted the use of the gift (e.g., gifts received in response to a specific appeal), the gift has an implied purpose restriction. For example, use of the resources is restricted if the gifts are received in a fund-raising campaign declared to be for a specific purpose—for example, to improve or construct capital assets.
- Promises to give that have payments due in future periods have an implied time restriction, unless the donor explicitly states that the gift is to support current-period activities or other circumstances make that clear. Such restrictions generally expire when the payments on those promises become due, which may be earlier than when the promised payments are received. For additional information on lapsing of implicit time restrictions, see AICPA TQA Section 6140.03 to AICPA TQA Section 6140.04 and AAG-NFP 11.37 to AAG NFP 11.45.
- If a donor makes a gift through an intermediary organization, and the third-party donee is unable to influence the timing of the distribution of the contributed resources from the intermediary, a time restriction is implied (see NP 8.5.2.1).
- Typically, state endowment laws specify that unless a gift instrument indicates otherwise, the assets in an endowment fund (see NP 10) are donor-restricted until they are “appropriated for expenditure.” These statutory requirements impose an implied time restriction on an endowment’s income and capital appreciation.
Example NP 6-7 illustrates the presentation of net assets with donor restrictions and without donor restrictions when a donor-restricted gift is received and when the restrictions are released.
EXAMPLE NP 6-7
Displaying donor-restricted contributions and releases of restrictions
Displaying donor-restricted contributions and releases of restrictions
Donor gives $10,000 to Museum to help defray the costs of a new exhibition. At the date of the gift, Museum’s financial statements reflect an increase in the donor-restricted component of net assets (net assets with donor restrictions). During the same period, Museum incurred $12,000 of costs associated with installing the new exhibition. Because the purpose restriction has been satisfied, the resources are reclassified to the unrestricted component of net assets (net assets without donor restrictions), so that the resources are associated with the expenses they are intended to fund.
How would the donor restriction be displayed in Museum’s statement of activities?
Analysis
Museum would reflect the following in its statement of activities:
Net assets
|
||
Without donor restrictions
|
With donor restrictions
|
|
Contribution revenue
|
$ --
|
$ 10,000
|
Net assets released from restriction
|
10,000
|
(10,000)
|
Total contributions and support
|
10,000
|
--
|
Expenses of new exhibition
|
(12,000)
|
--
|
6.7.2 Expiration of restrictions
Restricted contributions are generally reported as increases in net assets with donor restrictions when received. Under ASC 958-205-45-9, when the donor's stipulation has been satisfied (e.g., the equipment has been placed in service, the program activities have been carried out, the stipulated time period has elapsed), a reclassification is made from net assets with donor restrictions to net assets without donor restrictions to reflect the expiration of the restriction (see Example NP 6-7 in NP 6.7.1).
An NFP shall recognize the expiration of a donor-imposed restriction on a contribution in the period in which the restriction expires. A restriction expires when the stipulated time has elapsed, when the stipulated purpose for which the resource was restricted has been fulfilled, or both. If two or more donor-imposed restrictions that are temporary in nature are imposed on a contribution, the effect of the expiration of those restrictions shall be recognized in the period in which the last remaining restriction has expired.
Reporting the expiration of restrictions allows expenses to be associated with the gifts that are intended to support them. This is another unique aspect of the NFP financial reporting model, as discussed in NP 3.
The general rules for reporting expirations of restrictions, or “reclassifications,” are:
- They are recognized in the period the restriction expires.
- They simultaneously increase the unrestricted component of net assets while decreasing the donor-restricted component.
- They are reported separately from revenues and expenses.
Reclassifications are not revenues, expenses, gains or losses; instead, they are a special category of transaction unique to NFPs (ASC 958-605-45-7). They are reported as a separate line or lines on the face of the statement of activities using a caption such as “net assets released from restriction.” Because releases of restriction are not considered revenue, financial statement subtotals that include increases of net assets associated with releases of restriction typically refer to those amounts as “support” (for example, “Total revenues and support”).
Health care organizations must tailor the presentation of reclassifications in light of the additional reporting requirements associated with their reporting model. As discussed in NP 3, health care entities typically report their activities in two statements: a statement of operations and a statement of changes in net assets. When the restriction is satisfied, the decrease in donor-restricted net assets is reflected as a separate line in the statement of changes in net assets, and the increase in net assets without donor restrictions appears as a separate line in the statement of operations. In the statement of operations, the reclassification is reported above the performance indicator unless the restriction pertained to the purchase of long-lived assets (see NP 6.7.3).
Specific guidance is provided on reporting reclassifications in the following situations:
- When two or more sources of restricted net assets are available (NP 6.7.2.1)
- When both restricted and unrestricted net assets are available (NP 6.7.2.2)
- When donor-restricted contributions are received and used in the same period (NP 6.7.2.3)
- When two or more restrictions are imposed on a single gift (NP 6.7.2.4)
- Expiration of restrictions on gifts to acquire long-lived assets (NP 6.7.3)
Additional interpretive guidance is provided in AAG-NFP 11.30 to AAG-NFP 11.52.
6.7.2.1 Two or more sources of restricted net assets available
If two or more sources of restricted net assets are available that could satisfy a donor’s restriction, management can choose which source of restricted net assets to decrease when the reclassification is recognized or can allocate the expiration among the sources.
Example NP 6-8 illustrates the application of management’s discretion as to which source of restricted net assets to decrease.
EXAMPLE NP 6-8
Expenditure could satisfy two different donor restrictions
Expenditure could satisfy two different donor restrictions
A hospital purchases a $5,000 crib for its neonatal intensive care unit (NICU). At the time, the hospital had donor-restricted resources of $10,000 that were restricted for the NICU, and another $10,000 that were restricted for capital needs.
Which source of restricted net assets should the hospital release as a result of the purchase of the crib?
Analysis
Because the purchase of the NICU crib would satisfy donor restrictions associated with either category (i.e., NICU restriction because the crib was for the NICU or the capital needs restriction because the crib is a capital asset), management could choose to release net assets from restriction from either category or could allocate the release between them.
6.7.2.2 Restricted and unrestricted net assets are available
As implied by ASC 958-205-45-11, when expenses are incurred that would satisfy a donor restriction, the restriction must be released, regardless of whether the donated resources were actually spent. This requirement, informally referred to as the “first dollar” or “deemed spent” rule, precludes management from controlling the timing of releases of restrictions by choosing when to consider specific donor-restricted funds as having been spent. According to the rule, when expenses are incurred that satisfy the donor’s restriction, the donor’s purpose has been carried out regardless of whether the restricted net assets were used to make the purchase.
If an expense is incurred for a purpose for which both net assets without donor restrictions and net assets with donor restrictions are available, a donor-imposed restriction is fulfilled to the extent of the expense incurred unless the expense is for a purpose that is directly attributable to another specific external source of revenue. For example, an expense does not fulfill an existing donor restriction if that expense is incurred for a purpose that is directly attributable to and reimbursed by a sponsored exchange agreement or a conditional award from a government agency, private foundation, or others. Explicit time restrictions, such as those discussed in paragraph 958-205-45-10, and implied time restrictions, such as those discussed in paragraph 958-605-45-5, make net assets unavailable to support expenses until the time restrictions have expired.
The restricted net assets must be available for spending before expenses can be incurred that would satisfy a donor’s purpose restriction. If they are subject to time restrictions (explicit or implicit), then as a general rule, they are not available to support expenses until the time restrictions have expired. See NP 7.3.2.3 for further discussion of the expiration of time restrictions.
Note that the first dollar rule does not dictate the timing of when management must actually expend various sources of funds. It exists solely to determine (for financial reporting purposes) the point at which donor-restricted net assets are deemed to be released to net assets without donor restriction.
Example NP 6-9 illustrates the application of the first dollar rule.
EXAMPLE NP 6-9
Donor-restricted resources not used
Donor-restricted resources not used
A hospital purchases a $5,000 crib for its neonatal intensive care unit (NICU) using board-designated (unrestricted) assets. At the time, the hospital had donor gifts of $10,000 that were restricted for the NICU, and another $10,000 that were donor-restricted for capital needs.
From which source (board-designated or donor-restricted) should the hospital release net assets from restriction for the purchase of the crib?
Analysis
For financial reporting purposes, the crib’s purchase triggers a $5,000 reclassification from restricted net assets to net assets without donor restrictions, even though the hospital opted not to fund the purchase from contributed resources.
The hospital cannot avoid recognizing the reclassification simply because it chooses to use unrestricted resources for the expenditure.
The first dollar rule provides an exception for expenditures associated with earning revenue under a sponsored exchange agreement or when the entity will be entitled to promised resources under a conditional grant or promise to give—i.e., the expense is for a purpose that is directly attributable to another specific external source of revenue. If an expenditure is incurred pursuant to the performance of a sponsored exchange agreement (where typically the recognition of revenue is based on reimbursement of attributable costs), or the expenditure is incurred in furtherance of satisfying a condition related to a conditional grant or promise to give, the expenditure cannot also be attributed to another restricted contribution. AAG-NFP 11.33 through AAG-NFP 11.36 provide additional interpretive guidance in these circumstances.
Example NP 6-10 provides an example of applying this guidance in the context of a conditional grant.
EXAMPLE NP 6-10
Conditional grant is available
Conditional grant is available
University’s school of computer science and engineering (CSE) conducts research on robotics. For the year ended June 30, 20x2, University received donor gifts of $200,000 that are restricted for the robotics research program. It also has $100,000 available from an endowment that supports the CSE department and $100,000 from a federal cost-reimbursement (conditional) grant of $100,000 from the National Science Foundation for general robotics research. Expenditures associated with the robotics program during the year ended June 30, 20x2 were $250,000.
How much should the University reclassify from donor-restricted net assets in the period?
Analysis
When determining the amount of reclassification to report in its 20X2 financial statements, University is permitted to allocate up to (and seek reimbursement for) $100,000 of the expenditures to the National Science Foundation cost-reimbursement grant, triggering income from the grant. This is because the expenditure is directly attributable to another specific external source of external revenue. The remaining $150,000 would satisfy either the donor-imposed restrictions on the current year gifts restricted for robotics research or the endowment restricted for the CSE department. For internal record-keeping purposes, University could allocate the expiration to one or the other of the purpose restrictions or could allocate it between them. It might choose to use the more narrowly-restricted gifts for robotics first, but it is not required to do so.
Alternatively, University could choose to attribute all of the expenses to the donor-restricted sources, which would result in a reclassification of $250,000. In making that determination, University might consider how soon the federal cost-reimbursement grant ends and whether it is likely that other expenses meeting the grant terms would be incurred before the grant’s end date, to avoid the possibility of losing the grant resources permanently. If the University chooses to attribute all of the expenses to the donor-restricted sources, it cannot also submit the expenses for reimbursement under the federal grant.
6.7.2.3 Restricted contributions received and used during the same period
An NFP might satisfy a donor’s restriction in the same reporting period as the gift was received. Based on the general rules discussed in NP 6.7, the financial statements for that period would reflect an increase in restricted net assets for the restricted contribution received, along with a reclassification to net assets without donor restrictions reflecting the gift’s use for the intended purpose, as illustrated in Example NP 6-7 (in NP 6.7.1). However, ASC 958-605-45-4 allows entities to elect an accounting policy of reporting contributions whose restrictions are met in the same reporting period as unrestricted revenues.
Excerpt from ASC 958-605-45-4
Donor-restricted contributions whose restrictions are met in the same reporting period may be reported as support within net assets without donor restrictions provided that an NFP has a similar policy for reporting investment gains and income, reports consistently from period to period, and discloses its accounting policy.
This election is often referred to as “simultaneous release.” An entity that makes this election would simply report those gifts as unrestricted, instead of the separate steps of increasing restricted net assets and then reporting the expiration as separate transaction. If such a policy is adopted, the NFP must have a similar policy for reporting donor-restricted investment return that is utilized in the same reporting period in which it is earned. An NFP that adopts such a policy must also disclose it in the notes to the financial statements and apply it consistently from period to period.
Example NP 6-11 illustrates the application of the accounting policy election for reporting the release of restrictions in the same period as the support is received.
EXAMPLE NP 6-11
Simultaneous release election – purchase of PP&E
Simultaneous release election – purchase of PP&E
A hospital wishes to acquire a commercial building adjacent to its campus to house its Administrative Services division. The cost is $500,000. A donor makes a contribution that is restricted for use in purchasing the building. The donor’s contribution effectively underwrites the purchase of the building, which the hospital completes in the same period as the donor’s contribution was received.
How should the hospital record the contribution and release from restriction within net assets?
Analysis
If the hospital does not have a policy of reporting contributions whose restrictions are met in the same period as unrestricted, the contributions would be reported as an increase in donor-restricted net assets in the statement of changes in net assets, and the expiration of the restriction would be reported as an increase in unrestricted net assets in the statement of operations, reported below the performance indicator as illustrated in Example NP 6-7 (in NP 6.7.1).
If the hospital has elected the policy to report contributions whose restrictions are met in the same period as unrestricted, the contributions effectively “bypass” the statement of changes in net assets. Instead, they are reported in the statement of operations, reported below the performance indicator. Under the “simultaneous release” option, if the donor restriction and condition are satisfied simultaneously, the entity reports the contribution income as unrestricted, bypassing the separate steps of increasing restricted net assets and then reporting the expiration as a separate transaction.
The table below illustrates the difference in the two approaches.
Default presentation
|
Simultaneous release election
|
|||||||
Net assets
|
Net assets
|
|||||||
Without restrictions
|
Donor-restricted
|
Without restrictions
|
Donor-restricted
|
|||||
Revenues
|
$ 10,000
|
$ 10,000
|
||||||
Expenses
|
9,500
|
9,500
|
||||||
Excess of revenues over expenses
|
500
|
500
|
||||||
Contributions received for PP&E
|
–
|
$ 250
|
250
|
|||||
Net assets released from restriction used to acquire PP&E
|
250
|
(250)
|
–
|
–
|
||||
Change in net assets
|
$ 750
|
$ –
|
$ 750
|
$ –
|
||||
ASU 2018-08 expanded the “simultaneous release” election to provide an additional election specifically for donor-restricted conditional contributions. After adoption of the ASU, many transactions previously reported as exchange transactions (e.g., federally-sponsored awards) are reported as restricted conditional contributions. This creates a significant increase in both the amount of donor-restricted contributions, and, in turn, the amounts of net assets reported as released from restriction. Entities can make an election that is specific to donor-restricted conditional contributions, without having to adopt a similar policy for unconditional contributions and investment income.
Example NP 6-12 provides an example of applying the expanded policy election to conditional contributions.
EXAMPLE NP 6-12
Simultaneous release election for restricted conditional contributions
Simultaneous release election for restricted conditional contributions
University incurred expenses related to federal awards of $300 million during the period. University determined that all of the expenses were qualifying expenditures; therefore, both the condition and related donor-restrictions were met in the same period. University also received $80 million of unconditional, donor-restricted contributions, and released net assets from restriction of $50 million during the year relating to those gifts. The University has not elected a policy to report unconditional restricted contributions received and used in the same period as unrestricted gifts.
How should University report the release from restriction of its federal awards and donor-restricted contributions for the period?
Analysis
University would report $300 million of federal awards as contribution revenue (see NP 12 for further discussion of the impact of ASU 2018-08 on federally funded awards). For those grants, expending the funds causes two events to occur simultaneously: the recognition of donor-restricted contribution (because the condition is satisfied) and the release of the restriction (because the purpose restriction is satisfied).
Electing the ASU’s new simultaneous release option would permit University to report the income from those grants as unrestricted, bypassing the extra steps of increasing restricted net assets and then reporting a reclassification between net assets with restrictions and net assets without restrictions. It would be permitted to adopt that policy for all of its conditional donor-restricted contributions (including federal grants which now meet this definition) without altering the accounting historically used for its unconditional donor-restricted contributions. The financial reporting implications with and without the policy election would be as follows:
Default presentation (no simultaneous release election)
|
Simultaneous release election (for conditional contributions only)
|
|||||||
Net assets
|
Net assets
|
|||||||
Without restrictions
|
Donor-restricted
|
Without restrictions
|
Donor-restricted
|
|||||
Tuition revenues
|
$ 100,000
|
$ 100,000
|
||||||
Grants and contracts
|
$ 300,000
|
300,000
|
||||||
Contributions
|
80,000
|
$ 80,000
|
||||||
Net assets released from restriction
|
350,000
|
(350,000)
|
50,000
|
(50,000)
|
||||
Total revenues and support
|
$ 450,000
|
$ 30,000
|
$ 450,000
|
$ 30,000
|
||||
Note that University’s total revenues and support will remain the same either way. As such, the decision as to whether to adopt the election will largely depend on whether management believes the “gross” presentation of net assets released from restrictions is more useful to its financial statement users.
6.7.2.4 Two or more restrictions on a single gift
Pursuant to ASC 958-205-45-9, if a contribution has two or more restrictions, the reclassification from net assets with donor restrictions to net assets without donor restrictions is reported in the period in which the last remaining restriction expires. Generally speaking, if one of the restrictions is a time restriction (which limits the funds to use in a particular time period, or after a particular date), that restriction must be satisfied first. In other words, the purpose restriction cannot be satisfied until the funds are made available for spending. This is illustrated in Example NP 6-13.
EXAMPLE NP 6-13
Gift with both time and purpose restrictions
Gift with both time and purpose restrictions
On January 1 20X1, Private School received a $100,000 promise to give that was donor-restricted to support the athletics program. The promise was payable in full on December 31, 20X1. The donor did not specify that the funds were for use in a particular time period. Expenses incurred for the athletics program in 20X1 were $200,000.
Should Private School report a reclassification associated with the satisfaction of the donor’s restrictions in its financial statements for the period ended December 31, 20X1?
Analysis
Private School should not report a reclassification in its financial statements for 20x1. In making this determination, it must consider the interaction of two rules previously discussed: the implied time restriction associated with promises to give (discussed in NP 6.7.1), and the first dollar rule (discussed in NP 6.7.2.2). The gift received contains both an implied time restriction and a purpose restriction. The time restriction expires on December 31, 20X1. The purpose restriction (support of the athletics program) expires when Private School has incurred $100,000 of expenses that meet the donor’s stipulation.
However, the purpose restriction can only be satisfied by expenditures made after the time restriction expires, according to ASC 958-205-45-11. In other words, the donor’s resources must be available for spending before they can be used for the stipulated purpose. Therefore, even though Private School spent in excess of the $100,000 gift amount during 20X1, the resources were not available until December 31, 20X1, presumably after the expenditures were made.
If Private School incurs at least $100,000 of athletics program expenses in 20X2, it would report the reclassification in its 20X2 financial statements, which is the period in which the last restriction expires (ASC 958-225-45-9).
Specific exceptions apply to this general rule. For example, ASC 958-205-45-10A indicates that the implied time restriction on multi-year pledges for construction purposes, should be released when the related constructed capital asset is placed in service, even if the pledges are not yet due and payable.
In determining when the last of two or more donor-imposed restrictions that are temporary in nature has expired, explicit donor stipulations generally carry more weight than implied restrictions. For example, assume in Year 1 that an entity receives an unconditional promise to give that is payable in two equal installments in Years 2 and 3 with an explicit donor stipulation that its gift is to cover purchases of new equipment for the new School of Chemistry, which is expected to be completed in Year 3. That gift would have a purpose restriction (to be used to acquire new equipment to be housed in the new building), and because the unconditional promise is payable in Years 2 and 3, an entity generally would imply a time restriction (see paragraph 958-605-45-5). If, however, the building was completed early and opened in Year 2 and all of the needed equipment was purchased in Year 2 and exceeded the promised amount, absent an explicit stipulation to the contrary, it would be reasonable to conclude that those purchases fulfilled the donor restriction on the promised gift. The restriction for the purchase of the equipment expires when the equipment is placed in service in accordance with paragraph 958-205-45-12. In addition, a reclassification of net assets would be reported to reflect the decrease in net assets with donor restrictions and the increase in net assets without donor restrictions in Year 2.
According to ASC 958-205-45-10A, if evidence suggests that it is reasonable to conclude that a donor-restriction has been met, an implied time restriction should not override that evidence.
Additionally, if a donor makes a gift through an intermediary organization and the third-party donee implies a time restriction because it is unable to influence the timing of the distribution of those resources from the intermediary, the resources are nonetheless available to support expenditures prior to the expiration of the implied time restriction, according to footnote 18 of TQA 6140.18 and footnote 11 of TQA 6400.41. For additional information, see NP 8.5.2.1.
6.7.3 Contributions to acquire long-lived assets
Donors often contribute towards the purchase, construction, or acquisition of capital assets. If a donor provides explicit instructions on how long the asset must be used, the gift has both a time and a purpose restriction, and the time restriction expires over the stipulated time period. If no time restriction exists, the purpose restriction expires when the capital asset is placed in service as per ASC 958-205-45-12. At that time, the NFP reclassifies the gift amount from net assets with donor restrictions to net assets without donor restrictions.
Unless donor stipulations limit the use of the assets for a period of time or for a particular purpose, donor restrictions on long-lived assets, if any, or cash to acquire or construct long-lived assets are considered to have expired when the assets are placed in service.
A health care entity would report the reclassification from net assets with restrictions to net assets without restrictions below the performance indicator in the statement of operations as “net assets released from restriction,” unless the HCO has elected a simultaneous release policy for restrictions satisfied in the same period as the gift was received (see Example NP 6-12).
Special rules apply to reporting these contributions in the balance sheet. If the balance sheet is unclassified, assets that are restricted by donors for acquisition of long-lived assets (such as cash or contributions receivable) are not included in “cash and cash equivalents” or other “contributions receivable.” Instead, they are reported in a separate section, such as “assets restricted to investment in property and equipment,” and are sequenced near the “property and equipment” section or caption. In a classified balance sheet, the assets would be classified as noncurrent. For further discussion, see discussion of “assets whose use is limited” in NP 2.3.
Refer to NP 7 for a discussion of gifts of tangible long-lived assets and other noncash donations.
Question NP 6-6 addresses when to release restrictions on a donation is restricted to the construction of a long-lived asset.
Question NP 6-6
When a donor contributes to a capital campaign for the construction of a long-lived asset, may the restriction be considered released as the NFP makes construction-related expenditures?
When a donor contributes to a capital campaign for the construction of a long-lived asset, may the restriction be considered released as the NFP makes construction-related expenditures?
PwC response
In rare situations, a donor's gift instrument might be worded in such a specific manner that the NFP would need to consider whether the purpose restriction is satisfied when construction expenditures are made. However, most capital campaigns and campaigns to solicit funds for construction or renovation of a structure would be expected to be covered under the general rule in ASC 958-205-45-12, which requires that the restriction be released when the asset is placed in service.
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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