Answered Essay: This is for the American Red Cross (not for profit). Compare the organiz

This is for the American Red Cross (not for profit). Compare the organization’s reporting of pledges and contributions to its reporting of exchange transactions. How should they be recorded and subsequently reported in the financial statements.

Expert Answer

 

Contributions e.g. If John (who is not an owner of Red Cross) transfers $1000 to Red Cross without taking anything in return. Or Red Cross owes John $500, but John cancels that due amount and Red Cross need not give it to John anymore, then it is a contribution from John to Red Cross.

This amount $1000/$500 to be recognized as revenue.

Non Cash Contribution e.g. John lets Red Cross use his office space for public work for one month.

The fair value of the office space rent to be recognized as revenue.

Restricted Contribution e.g. Mike transfers $2000 to be used on education purpose in Africa

Temporarily restricted Contribution e.g. Mike transfers $1500 to be used only after November 2018

These temporarily restricted contributions can be recorded in a separate line and the net assets released (suppose 500$ used after November 2018) can be recorded in the unrestricted Contribution line and substracted from restricted contribution.

Permanently restricted Contribution: e.g. Sara has given land area to Red cross to perform their day to day activities on that land. Red cross can hold promotional activities to earn revenue on that land.

The value of the land can be put on a separate line and can be added in the net assets.

Conditional Promise to give: e.g. Joe promises to give $10000 to Red Cross if they setup their base in Mexico. This promise is documented.

This $10000 is recognized as revenue once the base is setup in Mexico (i.e. once the condition is met)

Unconditional promise to receive (Pledge): e.g. Bill promises to give $50000 to Red Cross.

This will be recognized as revenue once it is received

Once all the above pledges and contributions are recorded, they are added reported in the financial statement in the form of Total Operating Revenue and Gains

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