Question

A hospital receives the following promises to give:

Unconditional promise to give $25,000. The $25,000 can be used for any purpose that the hospital chooses

Conditional promise to give of $10,000 if the hospital purchases a new X-Ray scanner. The $10,000 must be used to maintain the X-Ray machine (if purchased)

Unconditional promise to give of $100,000 to be used for the construction of a new building.

How much contribution revenue should the hospital recognize from these promises to give?

Answer 1

Unconditional promises to give are recorded as contribution revenue immediately. Hence the unconditional promise to give $25,000 that can be used for any purpose that the hospital chooses should be recorded as contribution revenue immediately.

Unconditional promises to give that have a restriction pertaining to either the passage of time or a certain performance demand are also recorded as revenue immediately. The revenue is recorded as temporarily restricted revenue till the time such restriction is fulfilled. The unconditional promise to give $100,000 to be used for the construction of a new building is an unconditional promise with a performance demand. The revenue on the same should also be booked immediately.

The conditional promise to give $10,000 if the hospital purchases an X-ray machine is a conditional promise the revenue for which should only be recorded when the X-ray machine is purchased by the hospital.

Thus, the hospital should recognize a contribution revenue of $25,000 + $100,000 = $125,000.