 Hello and welcome to this session. This is Professor Farhad and this session we're going to be looking at donated material and assets other than cash and talk a little bit about special events. This topic is covered in government and not for profit accounting. Also covered on the CPA exam. This recording is being done summer 2019. As always I would like to remind you to connect with me only then. Life is too short. Let's get to know each other. YouTube is where you need to subscribe. I have over 1500 plus accounting, auditing and tax lectures. If you like my lectures, please like them, share them, put them in the playlist, let the world know about them. This is my Instagram account, this is my Facebook account and I do have a website where you can get in touch with me. Also you can donate on my website since we're talking about donation if you chose to. No, I'm not for-profit organization but if you like my lectures and you'd like to encourage me. So today we're going to be talking about donated material and supplies. What are we talking about here? What are the material? What are the supplies? Think about a thrift shop. Okay, what do they do? They receive donation, clothing, furniture, so on and so forth. So also health agencies, they may also receive donations from pharmaceutical companies. So how should we report those contribution? Well, all conditional gifts, once it's in conditional means you could use it in any way you would like to, it's reported at fair value. It's recorded both as a contribution or an expense or as a non-cash expense. As we saw earlier, you debit an expense, you credit revenue for that. Okay, you might be saying why do we do so? One more time because we want to show how much it's costing us to run the organization. Now, how do you determine the fair market value? Well, the organization can determine by the resale value, the price list, market quotation, and here they take into account the quantity and the quality of the gift when they are looking at the fair market value. Now, certain gifts, they might be harder than others. For example, use clothing, how do you find the fair value, but you will do your best. Now, based on the latest tax law, the Tax Cuts and Jobs Act, what happened is this, people are no longer needed to contribute or not needed to contribute, but people are no longer have the same motivation as before. Why? Because the standard deduction doubled. The standard deduction went up before people, they used to contribute, donate to charities. Why? Because as you make your donation, you can get that value deducted on your tax return, but since the standard deduction is doubled, they basically doubled the standard deduction, so basically they given you the deduction with or without your contribution. So it remains to be seen if there's any change in the donation overall. This is the first year we're going to wait several years until we find out if that policy did change the consumer or the citizen's behavior and donating. It's interesting, but we'll find out later. Also, the organization could receive land, building, and equipment as donation, in addition to material. Again, they are reported at fair value. The donation could be considered contribution, basically if you receive a building or a land and you're going to sell it, or it could be considered support if you're going to be using that land or building for your own operation. And that's going to be reported on the statements of activities, and it will either be classified as without donor restriction. It means you can do whatever you want with it, with the proceeds or with the asset that you receive, or with donor restriction on the financial report. Now, bear in mind, once you put that asset to use, it becomes unrestricted. So donor restriction are assumed to have expired once the asset is placed in service unless the donor restriction limit the use of the asset for a specific period of time or for a specific purpose. But generally speaking, once you put that asset to use, well, guess what? It's no longer restricted. It's unrestricted without restriction. Also, if you received reduced rent, what does that mean? Let's assume the organization is renting an office or a floor in a building and generally speaking, the rent is $5,000, but because you're the not-for-profit, they're giving you the rent for $3,500. So they have a discount of $1,500. The discount is basically in a sense a contribution. Special events, what are special events? Special events are fundraising activities that provide direct benefit to those attending. The contribution to attend exceed the cost obviously of the direct benefit provided resulting in the contribution revenue. So basically, the non-profit will have an event and people will attend the event, they will pay money to attend the event and the expense is less. Obviously, if the expense is more, why would you do it? So what are some examples? Will be spaghetti dinners, dances, golf, outing, bazaars, court parties, fashion shows, bingo, bake sales, are typical special events. For example, I I belong to a church in eastern Pennsylvania and every year they do actually they do many things. They do a lot of dinners. They do bingo event and I used to work with those dinners and bingo event when I was living there. I'm no longer living in the area, but every year they also have a big festival where thousands, literally thousands and thousands of people would attend and this is the 42nd annual. Actually, if you're interested you could still attend August 3rd and 4th. What they do is they have children activities, there's life music and dancing, food, so on and so forth. So this is basically what's considered a special event. So revenue from special event must be reported at gross with direct expenses provided, the benefit reported separately. So basically you have revenues coming in and the expenses are reported the expenses are reported separately. Now if the special event is peripheral or incidental, basically it means it happens once a year and for example this event happened once a year versus the dinners spaghetti dinners they practically they do them on a weekly or a monthly basis. The not-for-profit to the not-for-profit the direct expenses can be netted against the revenue. So if it's a special event, basically a peripheral, a peripheral means it happens once once in a year you can net them. Okay, special event gross revenue include the fair value of the benefit received by the donor plus any amount received from the nor and access to the fair value of the benefit received. For example, you bought a meal and the meal is let's assume the meal is six dollars and what you did is you paid ten dollars for the meal. Why? Because you wanted to contribute to the church, you paid an extra four dollars. Okay, so that extra four dollars is access, is access to the benefit of the meal. Okay, so what happened under those circumstances? Well the not-for-profit may elect to report only the fair value of the benefit received by the donor as special revenue and the remainder would report it as a separate line so they would report six dollars for special revenue and four dollars at other revenue. In a sense it's like a tip or you know you just wanted to contribute but it's more than the fair value of the benefit that you are receiving. If desired the not-for-profit can provide more detailed reporting of the special event either on the face of the financial statements or in the notes. The cost of promoting and conducting the special event and you could have a lot of cost, printing tickets, posters, mailing fees and expenses so on and so forth salaries to employees. All these expenses are reported as a fundraising expense and are not charged against the special event revenue so you would report them separate. One more topic we're going to go over and that's contribution of assets involving intermediary. What's an intermediary? It's in between. It's in between. Now we want to think back to the one we talked about the agent and a trustee in a governmental accounting. Similar to an agent or a trustee an intermediary serves an fiduciary capacity by helping the transfer of assets between the donor and the beneficiary. Generally speaking the agent will recognize an asset and a liability so simply put let's assume someone donated money to the church and the church is supposed to hold the money so this is the church supposed to hold the money and give it to another organization to feed the poor. That's what you did. So you contribute the money to the church but the church is going to hold the money so let's assume it's a hundred dollar. The church will debit cash 100 with credit some sort of a liability 100 and once they transfer the money they will debit the liability and they will credit cash. They will debit the liability and they credit cash. So this is if they are working in the in an intermediary capacity. So there's you know they give the money because you you go through your church and your church gives the money to another organization. Okay this is what it is. Now if the agent or the intermediary let's assume the church is interrelated to benefit to the to the many organizations. Let's assume the church has what's called variance power. It means it can influence how it can influence it has some some sort of an asset relationship with them or maybe the presidents and the officers on both on both boards are the same then in that situation and because of that you can influence their decision then you would consider it as your revenue because if that's the case if you have any interrelated financially interrelated the relationship then guess what you and that organizations are the same in those circumstances you reported as a revenue. Okay so how do we determine if it's financially interrelated one of the entities has the ability to influence the operating and financial decision. Again think about the board is the board of the church and board of the feeding the poor are the same and one of the entities has an ongoing economic interest in the net asset of the other or feeding the poor relies heavily on the church therefore they have an economic interest in them in a sense there's in a sense it's a subsidiary or they have a variance power exists when the agent has the ability to redirect the asset received to an entity other than the many so what you did is you gave it to the church you told them give give it to this organization to feed the poor well if you have the right to give it to some other organization rather than feeding the poor you want to give it to another education that educate the poor well if that's the case you have that variance power so they told you give it to the poor but you can do anything with it guess what if you can do anything with it besides given giving it to feeding the poor then you'll have a variance power therefore it's revenue to you if you have any questions about this topic please email me if you haven't visited my website for additional lectures please consider donating and if you're studying for your CPA exam as always study hard it's worth it good luck