A not-for-profit (NFP) organization received a conditional pledge of $50,000 from a donor, contingent upon the NFP securing matching funds from other donors within six months. As of the end of the fiscal year, the NFP had secured $20,000 in matching funds. How should this conditional pledge be recognized in the NFP's financial statements?
- AAs revenue of $20,000 in Net Assets With Donor Restrictions and deferred revenue of $30,000.
- BAs revenue of $50,000 in Net Assets With Donor Restrictions.
- CAs a receivable of $50,000 and deferred revenue of $50,000.
- DNo revenue or receivable should be recognized until the condition is substantially met.
Show answer & explanationAnswer & explanation
Correct answer: D. No revenue or receivable should be recognized until the condition is substantially met.
For a conditional contribution, revenue recognition occurs only when the conditions are substantially met. Since the NFP has not yet secured the full matching funds ($50,000), the condition for the pledge has not been met, and no revenue or receivable should be recognized from the conditional pledge itself. The secured $20,000 matching funds would be recognized separately.
Why the other options are wrong
- A. Revenue from the conditional pledge itself is not recognized until the full condition is met.
- B. This is incorrect; conditional pledges are not recognized as revenue until conditions are met.
- C. Deferred revenue is used for unconditional promises to give with time restrictions, or for exchange transactions, not conditional pledges.
Conditional Contributions (NFP)
A conditional contribution to an NFP depends on the occurrence of a specified future event (a barrier) and a right of return or release from obligation. Such contributions are not recognized as revenue or receivables until the conditions are substantially met.
- Recognition depends on specific conditions (barriers)
- Includes a right of return or release from obligation
- No revenue/receivable until conditions are met
Memory trick: NFP's gifts are either unconditional (now) or conditional (later).