[BenB]

Which of the following best describes a situation in which an unconditional contribution should be recognized as revenue by a private not-for-profit organization?

A.

In the period when cash or other assets are received at the carrying value on the books of the donor

B.

In the period received at fair value

C.

In the period in which the donor states its unconditional promise to make the contribution and at the carrying value on the books of the donor

D.

In the period in which the donor states its intention to make the contribution and at fair value

The answer is B, however I find the explanation to be wrong. Unconditional promises should be recognized in the period they are made.

Unconditional contributions, whether promised or received as cash, are recognized as revenue in the period received. Contributions revenue should be measured at fair value, not donor’s book value. Donor intentions to give, rather than unconditional promises, are not considered revenue.

FAR 7/11/16 - 87
BEC 9/9/16
REG TBD
AUD TBD

[Anonymous]

You're right – unconditional promises should be counted. However, they threw in an “and”. The value that the contribution is book for is its fair value, not its value on the donor's books. So, C is 1/2 right and 1/2 wrong, so therefore wrong. If it said “In the period in which the donor states its unconditional promise to make the contribution and at the fair value”, then C would be a right answer.

As it is, C is wrong, because it states the wrong value to be used. However, B is right, unless it was a pledge from a prior period, but since it doesn't say that it was a pledge, then B can be right. So, since B can be right (there's no indication it's a pledge), B is the answer.

[BenB]

My answer was actually D, because stating an intention seems to me like a promise.

The (incorrect) explanation given says
“Unconditional contributions, whether promised or received as cash, are recognized as revenue in the period received.”

FAR 7/11/16 - 87
BEC 9/9/16
REG TBD
AUD TBD

[Anonymous]

BenB,

Per SFAS 116 for answer B and the explanation:

“Contributions received (donee accounting) shall be capitalized by the donee at FMV of the item and recognized as revenue in period received.”

“Receipts of unconditional promises to give the payments due in the future shall be reported as restricted support.”

[BenB]

After reading SFAS116 It's possible that “intent” does not qualify as enough to be recognized as a promise.

“A promise to give is a written or oral agreement to contribute cash or other assets to
another entity; however, to be recognized in financial statements there must be sufficient
evidence in the form of verifiable documentation that a promise was made and received.”

FAR 7/11/16 - 87
BEC 9/9/16
REG TBD
AUD TBD

[Anonymous]

Yep, the “intent” wasn't enough. “Intent” could just mean at a BBQ with the non-profit's CEO Mr. Jones said “Ya know, I believe I'd like to sponsor your XYZ Event next year”. That could show “intent”, but is not an unconditional promise.

Practically speaking, unconditional promises usually have to be in writing to be recorded. Technically oral may be acceptable, but proving an oral agreement is hard, so most organizational policies require a written agreement. In the eyes of the law, an unconditional promise to give is essentially a debt taken on by the donor, and therefore an asset of the recipient. So, you've got to have proof to back it up, similar to how you would back up a debt owed to you.

[Author]

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