PFRS for Non-Profit Organizations_MILLAN

• PFRSs are designed for business entities but can be applied to non-profit organizations (NPOs).
• NPOs address socially desirable needs without aiming for profit.
• NPOs can be: Health Care Organizations, Private non-profit colleges/universities, Voluntary Health and Welfare Organizations, and Other non-profit organizations.
• Contributions are classified based on donor restrictions: unrestricted, temporarily restricted, and permanently restricted.
• Internally-restricted funds are classified as unrestricted.
• Unconditional promises are recognized when the promise is received.
• Conditional promises are recognized when the attached condition's performance is reasonably certain.
• Cash and non-cash assets received are recognized as assets and revenue at fair value.
• Services in-kind are recognized as revenue and expense if they enhance a non-financial asset or require specialized skills.
• Works of art are generally not recognized unless they meet asset recognition criteria.
• Contributions received by an NPO acting as an agent are recognized as liabilities.
• Released assets are shown as a decrease in temporarily restricted assets and an increase in unrestricted assets.

NPO Financial Statements

• NPOs prepare: (1) Statement of financial position, (2) Statement of activities, (3) Statement of cash flows, and (4) Notes.
• Expenses are classified as (1) Program services and (2) Supporting activities.

Healthcare Organization Finances

• Net patient revenue = Gross patient service revenue less contractual adjustments, employee discounts, and billed charity care.
• Premium revenue is revenue from capitation agreements.
• Other revenues are all other unrestricted revenues.

Restricted Revenue

• Restricted contributions are separated from revenues in the statement of operations.
• Net revenue from tuition and fees = Total assessments less refunds and non-compensatory scholarship grants. Other scholarships are expensed.

Multiple Choice Questions

• NPOs may need to amend the descriptions used for particular line items in the financial statements.
• Non-profit entities may find the IFRSs appropriate.
• Disclosure of earnings per share is not applicable to non-profit organizations.
• For a non-profit entity, the operating activities section of the statement of cash flows can be prepared using both the direct and indirect methods.
• Financial reporting for non-profits focuses on the reporting entity concept.

Cash Flow Statements

• The statement of cash flows for a non-profit classifies cash flows into operating, investing, and financing activities
• Depreciation expense is applicable to non-profit organizations.
• Restricted contributions received by an NPO are recognized when the performance of the condition is reasonably certain.
• The statement of activities explains changes in unrestricted, temporarily restricted, and permanently restricted net assets.

Contribution Measurement

• Contributions are measured at fair value.
• Cash & non-cash assets received as contributions are recognized as both assets and revenue for a non-profit.
• Donations of certain services are recognized as both an asset and expense.

Service Recognition

• Services received as donations that do not enhance a non-financial asset are not recognized.
• Contributions of art need not be capitalized.
• Contributions to an NPO acting as agent are a liability.

Functional Categories

• "Program services" refer to costs incurred to directly fulfill the organization's purpose.

Statement of Cash Flows: Restricted Assets

• Restricted assets are classified as financing activities.
• A contractual adjustment lowers a healthcare organization's net patient revenue.
• A private college's net revenues is revenue from tuition and fees.

Revenue

• When calculating net patient revenues, tuition refunds and uncollectible accounts are typically deducted

Donations

• The land with a fair value is an unrestricted contribution.
• Cash, restricted for the purchase of a truck is a temporarily restricted contribution.
• Investments will be permanently restricted.
• “Net assets released from restrictions” is the total amount of temporarily restricted and permanently restricted funds that were used in accordance with the donor’s wishes in the current year

Net Assets

• A zero net effect on unrestricted net assets would arise when assets are received with offsetting restrictions.
• Non-cash assets include plant assets and equipment held for sale.
• Expenses may arise when donor-restricted funds are used for the specified purpose.

Non-Profits

• Contributions to a non-profit are temporarily restricted if they are to be used to acquire equipment to construct a new building

Revenues and Expenses

• Sales from the canteen and investment income typically comprise a nonprofit’s other revenues
• Cash restricted for the purchase of equipment affects financing activities.

Net Asset Restrictions

• Restricted gifts can be used as for student scholarships.
• Green Leaves Organization acts as an agent, and thus recognizes expenses.
• Receipt of in-kind donations of service revenue is recognized in cases where the services received require specialized skills.
• The statement of activities explains changes in unrestricted, temporarily restricted, and permanently restricted net assets.
• Program expenses pertains to activities that result in goods and services being distributed to beneficiaries.