MEMO
To: Manager of Best Rugby Club
From: Morgan Prasad, CGA
Date: June 10, 2013
Re: Accounting policy for restricted contributions
I have been asked to describe how the restricted contributions for the rugby field and for the clubhouse would be accounted for under each of the two methods allowed in the CPA Handbook,
Part III. Let me first give you a bit of background on the types of contributions (donations) that a not-for-profit organization (NFPO) typically receives. Contributions are a type of revenue unique to NFPOs. There are generally three different types of contributions:
Restricted contributions: Restricted contributions are subject to externally imposed stipulations as to how the funds are to be spent or used. The organization must use the resources in the manner or for the purpose stipulated by the donor. There may be times when the directors of an organization decide to use certain contributions for certain purposes, but these are considered to be internally imposed restrictions and do not fall within the definition of restricted contributions.
Endowment contributions: Endowment contributions are a special type of restricted contribution.
The contribution cannot be spent, only the earnings from investment of the contribution can be used for general purpose.
Unrestricted contributions: Unrestricted contributions are those that are not restricted nor are they endowment contributions.
The club is expecting a major corporate donation that will be restricted for the acquisition of a new rugby field and clubhouse. You would like me describe how the restricted contributions for the rugby field would be accounted for under each of the two methods. The two accounting methods for contributions are the deferral method and the restricted fund method.
Under the deferral method, the contributions relating to the clubhouse and rugby field infrastructure (seating, goal posts, artificial turf, and so on) would be deferred when received and recognized as revenue on the same basis as these items are depreciated. This is because The deferral method matches restricted contribution revenues with related expenses. Because The expenses relating to depreciable capital assets will occur in future periods as depreciation, the associated restricted contributions must be deferred until that depreciation is recognized. On the other hand, The contributions relating to the land would not be recognized as revenue at all under the deferral method, but rather would be
