Question

Identify three types of restrictions placed on donor restricted net assets and outline the accounting requirements for each type.

Answer 1

(a)Time Restricted: Contributions restricted based on time are recorded as temporarily restricted revenues when received, then reclassified to unrestricted net assets when the time period passes. These may include Term endowments: Amounts contributed by a donor which are not to be expended for a period of time. These are accounted for as temporarily restricted net assets. When the term expires the assets are reclassified as unrestricted.

(b)Purpose Restricted: Contributions restricted based on purpose or use are recorded as temporarily restricted revenues when received, then reclassified to unrestricted net assets when the purpose has been fulfilled. This usually is when a qualified expense has been incurred.

(c)Fixed Asset Acquisition: Contributions restricted based on fixed asset acquisition are recorded as temporarily restricted revenues when received. When the fixed assets are acquired, the organization has two choices as to how to account for them. (1) The resources may be reclassified to unrestricted resources when the asset is acquired or (2) the plant may continue to be classified as temporarily restricted and reclassified to unrestricted net assets as the asset is depreciated.