2012-01-24 Advanced NP Acctg Pt. 2

Advanced Nonprofit
Accounting ASC
958
Jean Gilbert, Senior Manager, Outsourcing
January 24, 2012

Thrive. Grow. Achieve.

ADVANCED NON PROFIT ACCOUNTING
ASC 958

OBJECTIVES

• Discuss complex contribution agreements and understand donor intent
• Understand how to account for revenue derived from endowments
• Obtain basic understanding of accounting for split interest agreements
• Discuss accounting treatments for donated goods and services
• Obtain basic understanding of forward currency contracts

Advanced NPO Acct/ Page 2

ASC 958

APRIL, 2011: BOSE MAKES STOCK DONATION TO MIT

• Amar Bose, Founder of a company that bears his name, has given the majority of
the stock of Bose corporation to the Massachusetts Institute of Technology.

• The gift is in the form of non-voting shares, MIT said, and it added that it will
receive annual cash dividends on those shares when dividends are paid by Bose
Corp; those cash dividends will be used by MIT to sustain and advance MIT’s
education and research mission.

• “Under the terms of the gift, MIT cannot sell its Bose shares and will not
participate in the management or governance of the company,” MIT said.

• Asked about the value of the gift, an MIT spokesman replied by e-mail “Dr. Bose
and Bose Corp., a privately held company, keep details of financial matters
confidential. MIT will honor that confidentiality and will not discuss the financial
details of this gift.”


ASC 958

SUPERSEDED PLEDGE

• Original (Superseded) Terms: $2 million to be paid each December in 2009, 2010,
2011, 2012, 2013
• Payments made in 2009 and 2010.
• New Terms: $10,000,000 to be paid upon my death from my estate. This pledge
shall be binding on my estate, heirs, successors, assigns and personal
representatives


ASC 958

ENDOWMENTS

• Uniform Prudent Management of Institutional Funds Act.
Essentially is a law which was adopted within the states
UPMIFA governing how an organization may account for, invest
and spend endowment funds

• As defined by UPMIFA: An institutional fund or part
Endowment thereof, that under the terms of a gift instrument, is not
wholly expendable by the institution on a current basis.
Fund The term does not include assets that an institution
designates as an endowment fund for its own use.

• Prudent investment management guidance
Rules • Spending policies


ASC 958

ACCOUNTING FOR ENDOWMENTS: REQUIRED DISCLOSURES

• A description of the governing board’s interpretations of the laws that underlie
the organization’s treatment of endowment funds
• A description of the organization’s spending policy
• A description of the organization’s returns policy/expectations
• Finally, the composition of and changes in an organization’s endowment net
assets


ASC 958


• The spending policy of ABC Organization allows for the Governing Board to
determine the amount which can be expended annually from endowment
earnings. The amount may not exceed 5% of the endowment corpus, and it may
not be less than 2%. In 2010, the Board voted to spend an amount equivalent to
2% of the corpus.


ASC 958


• The investment policy statement of the ABC Organization aims for an average
annual return of 7% over seven years.


ASC 958



ASC 958

INVESTMENTS: VALUATION

Debt and • Initially at acquisition cost; subsequently
equity measured at fair value (using best
securities measurement inputs available)

• Organizations which took the Fair Value
Option (ASC 825-10) must report all other
Other investments at fair value. Normally reported
at acquisition cost unless major impairment
occurs.


ASC 958

INVESTMENTS: ACCOUNTING

• Except for the return on donor-restricted endowment earnings, dividends,
interest and other investment income should be reported as changes to
unrestricted net assets, unless there are donor imposed restrictions as to the
use of the income.


ASC 958

SPLIT-INTEREST AGREEMENTS

• Charitable remainder trusts (CRT)
• Charitable lead trusts (CLT)
• Pooled-income funds (PIF)
• Charitable gift annuities (CGA)


ASC 958


• Charitable Remainder Trust/ Pooled Income Fund/ Charitable Gift Annuity
̵ The donor makes a contribution and is also guaranteed an annuity payment
̵ Accounting entry:


ASC 958


̵ The first annuity payment is made by charity to beneficiary (fixed pmt under CGA)


ASC 958


̵ Donor dies


ASC 958


• Charitable Lead Trust
̵ Agreement entered into


ASC 958


̵ Payment received


ASC 958


̵ Donor dies


ASC 958

DONATED GOODS AND SERVICES

• Loans that are interest free or are below market

• Contributed services

• Contributed use of assets

• Contributed works of art and historical treasures


ASC 958


• Loans that are interest free or are below market:


ASC 958


• Contributed Services

– The service creates or enhances a nonfinancial asset (such as equipment, inventory, buildings
and other property), or
– The service requires specialized skills, is provided by individuals who possess those skills and
the service would typically need to be purchased had it not been contributed to the organization


ASC 958


• Contributed Use of Assets

– A donor might allow a charity to use its an asset without paying a lease payment or rent
o This would be recorded as a contribution
o Recorded in the period the asset is donated
– If the asset is being donated over several periods
o Recorded as a contribution receivable and a contribution at fair value.
o Receivable reduced and expense increased as asset is used
o Also released from restriction to the extent of the use


ASC 958


• Contributed works of Art and Historical Treasures

– A charity is not required to record a contribution if the following three criteria are met
o The works must be held for public exhibition, education or research
o The items are protected, unencumbered, cared for and preserved, and
o They are subject to the organization’s policy that requires that proceeds from the sales of collection
items to be used to acquire other items for the collection


ASC 958

FORWARD CURRENCY CONTRACTS

• Organizations enter into purchase agreements in currency other than their reporting
currency.

• In order to protect against currency fluctuations, an organization may enter into a
forward contract to purchase the currency for which the purchase is being made
using an agreed upon exchange rate.


ASC 958

FORWARD CURRENCY CONTRACTS: WHY?

• ORG enters into a contract on January 31 for CHF100,000 of services during
February, payable on February 28. CHF amount remains CHF100,000. The
exchange rate for CHF on Jan 31 is .96, and on Feb 28 is 1.02.


ASC 958

FORWARD CURRENCY CONTRACTS: WHY?

• ORG might contract with a bank on Jan 31 to purchase CHF at .98. the purchase
is to occur on February 28 to hedge against currency fluctuations.

Forward Contract Cost Value Gain/(loss)

Reporting period 1/31 98,000 96,000 (2,000)
Settlement 2/28 98,000 102,000 4,000
Realized gain/(loss) 2,000


ASC 958

FORWARD CURRENCY CONTRACTS

• The difference between the forward exchange rate (contract rate) and the spot
rate (daily exchange rate) equals the fair value of the contract
• The fair value of the contract must be recorded and reported on the statement of
financial position


ASC 958

FORWARD CURRENCY CONTRACTS: ACTIVITY

• For this activity, ORG entered into a contract with UBS, to sell $7.5M in three
equal installments of $2.5M (notional amount) USD, to purchase CHF on the 5th
of Aug, Sep, and Oct, at a contracted rate of .9607.
• Calculate the value of the contract by period, the unrealized and realized gains
• ACTIVITY SPREADSHEET


ASC 958

QUESTIONS?


2012-01-24 Advanced NP Acctg Pt. 2

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