CPA Exam - FAR (Financial Accounting and Reporting)Not-for-Profit EntitiesMedium
A not-for-profit educational institution received a donation of land with an appraised fair value of $300,000. The donor stipulated that the land must be used to construct a new dormitory, and it cannot be sold. The institution immediately began planning the construction. How should the NFP record the initial receipt of this land?
- ADebit Land $300,000; Credit Contribution Revenue - Without Donor Restrictions $300,000.
- BDebit Land $300,000; Credit Gain on Contribution $300,000.
- CDebit Land $300,000; Credit Contribution Revenue - With Donor Restrictions $300,000.
- DDebit Land $300,000; Credit Deferred Revenue $300,000.
Show answer & explanationAnswer & explanation
Correct answer: C. Debit Land $300,000; Credit Contribution Revenue - With Donor Restrictions $300,000.
The donor's stipulation that the land must be used for a new dormitory and cannot be sold constitutes a purpose restriction. Contributions with donor-imposed purpose restrictions are recognized as increases in net assets with donor restrictions. Land is a non-depreciable asset, so no depreciation will be recorded.
Why the other options are wrong
- A. Incorrect. The purpose restriction (for a dormitory) makes it a donor-restricted contribution.
- B. Incorrect. Contributions are generally recognized as contribution revenue, not a gain, especially for unrestricted or restricted gifts.
- D. Incorrect. This is an unconditional contribution with a restriction, not a conditional contribution requiring deferred revenue.
Non-Depreciable Asset Contribution (NFP)
Donated non-depreciable assets, such as land, are recorded at fair value at the date of contribution. Any donor-imposed restrictions (e.g., purpose, time) dictate their classification as 'net assets with donor restrictions'.
- Recorded at fair value.
- Non-depreciable assets (e.g., land) are not depreciated.
- Donor restrictions classify as 'net assets with donor restrictions'.
Memory trick: Donated 'Land' for a 'Dorm' is 'Restricted', 'L'ocked up for a 'L'ong-term purpose.