Professional Documents
Culture Documents
p2 Guerrero Ch12 PDF
p2 Guerrero Ch12 PDF
Nonprofit Organizations
A nonprofit (not-for-profit) organization is a legal accounting entity that is operated for the
benefit of the public as a whole, rather than for the benefit of its owners. Nonprofit
organizations include civic organizations, colleges and universities, hospitals, private
foundations, religious organizations, and social and country clubs.
To be familiar and proficient with the problems involving nonprofit organizations, candidates
should have an understanding of the following aspects of accounting for nonprofit
organizations:
The accounting unit for nonprofit organizations just like in the national government is the fund,
with self-balancing set of accounts, recording cash and other financial resources, together with
related liabilities and residual equity balances, and changes therein, which are accounted for
separately in order to carry on specific activities or to attain certain objectives in accordance
with special regulations, restrictions, or limitations.
Unrestricted Fund
Restricted Fund
UNRESTRICTED FUND
In many aspects, unrestricted fund is similar to the general fund of a government entity, which
is discussed in Chapter 8. The unrestricted fund includes all the assets of a nonprofit
organization that are available for use as authorized by the board of directors and are not
restricted for specific purposes.
Expenses of nonprofit organizations are usually classified in two groups” program services and
supporting services. Program services are the activities of the organization that result in the
distribution of goods and services to customers, beneficiaries, or members that serve the
purposes of the organization. Supporting services are all activities of the organization other
than programs services, such as management and general, fund-raising, and membership
development activities.
Most assets and liabilities of a nonprofit organization’s unrestricted fund are similar to the
current assets and liabilities of a business enterprise. Cash, investments, accounts receivable,
inventories and prepayments are the usual assets of an unrestricted fund.
RESTRICTED FUND
The assets of restricted funds are not derived from the operations of the nonprofit
organization. These are obtained from restricted gifts or grants from individuals or government
entities, and income from restricted fund investments.
Restricted funds of nonprofit organizations are classified into temporarily restricted and
permanently restricted.
This consists of assets available for current use but expendable only as authorized by the donor
of the assets. These assets are transferred to the unrestricted fund at the time the designated
expenditure is made.
The financial statements of nonprofit organizations are the statement of financial positions,
statement of activities, and the statement of cash flows.
This statement shall report (1) the amount of the organization’s total assets, total liabilities, and
total net assets, and (2) the amount for each of the three classes of the organization’s net
assets: permanently restricted, temporarily restricted, and unrestricted.
Statement of Activities
This statement shall report (1) the amount of the change in the organization’s net assets for the
period with a caption such as changes in net assets or changes in equity, (2) the amount of the
changes in each of the three classes of the organization’s net assets; permanently restricted,
temporarily restricted, and unrestricted, (3) gross amounts of revenues and expenses of the
organization, except that investment revenues may be reported net of expenses and gains or
losses on disposal of plant assets may be reported net, and (4) expenses by functional
classifications such as program activities and supporting services.
The statement of cash flows shall be similar to one that is issued by a business enterprise. This
statement shall report (1) cash provided by operating activities, (2) cash flows from investing
activities, and (3) cash flows from financing activities.
Illustrative Financial Statements
The following financial statements illustrate a format that complies with the current standards:
Nonprofit Organization
Statement of Activities
Year Ended December 31, 2013
Assets
Cash and cash equivalents P3,400
Receivables (net) 10,600
Inventories 1,400
Investments 440,000
Plant assets (net) 134,600
P589,800
Net assets:
Unrestricted 184,000
Temporarily restricted 100,000
Permanently restricted 282,400
566,400
P589,800
Nonprofit Organization
Statement of Cash Flows
Year Ended December 31, 2013
1. Albert University, a private nonprofit university, had the following cash inflows during
the year ended December 31, 2013:
On Albert University’s statement of cash flows for the year ended December 31, 2013,
what amount of these cash flows should be reported as operating activities:
a. P900,000
b. P400,000
c. P800,000
d. P600,000
2. Santa Clara Hospital, a private nonprofit hospital, earned P250,000 revenues from its
gift shop located at the lobby and spent P50,000 on research during the year ended
December 31, 2013. The P50,000 spent on research was part of a P75,000 contribution
received during December of 2010 from a donor who stipulated that the donation be
used for medical research. Assume none of the gift shop revenues were spent in 2013.
For the year ended December 31, 2013 what was the increase in unrestricted net assets
from the events that occurred during 2013?
a. P300,000
b. P200,000
c. P250,000
d. P275,000
4. Santa Fe Hospital, a private nonprofit hospital, had the following cash receipts for the
year ended December 31, 2013:
Patient service revenue P300,000
Gift shop revenue 25,000
Interest income restricted by donor for the acquisition
of computer equipment 50,000
As a result of these cash receipts, the hospital’s statement of cash flows for the year
ended December 31, 2013 would report an increase in operating activities of
a. P325,000
b. P375,000
c. P350,000
d. P350,000
5. San Luis Hospital, nonprofit hospital affiliated with a religious group, reported the
following information for the year ended December 31, 2013:
On hospital’s statement of activities for the year ended December 31, 201, what
amount should be reported as net patient service revenue?
a. P875,910
b. P890,910
c. P855,000
d. P955,000
6. San Jose Hospital, a nonprofit hospital affiliated with San Carlos College, had the
following cash receipts for the year ended December 31, 2013:
The dividends received are restricted by the donor for hospital building improvements.
No improvements were made during 2013. On the hospital’s statement of cash flows for the
year ended December 31, 2013, what amount of these cash receipts would be included in the
amount reported for net cash provided (used) by operating activities?
a. P880,000
b. P800,000
c. P1,050,000
d. P750,000
7. Santa Rosa College, a private nonprofit college, received the following contributions
during 2013:
For the year ended December 31, 2013, what amount of these contributions should be
reported as temporarily restricted revenues on the statement of activities?
a. P50,000
b. P5,050,000
c. P5,000,000
d. P6,050,000
Shares valued at P5,000,000 are to be sold, with the proceeds used to erect a
building.
Shares valued at P2,000,000 are to be retained, with the dividends used to
support current operations.
As a result of the receipt of the BW shares how much should Saint Peter Hospital report
as temporarily restricted net assets on its 2013 statement of financial position?
a. P -0-
b. P2,000,000
c. P5,000,000
d. P7,000,000
9. San Miguel Hospital, a nonprofit hospital affiliated with a private university, reported
the following data for the year ended December 31, 2013.
a. P25,000
b. P75,000
c. P100,000
d. P250,000
10. A nonprofit organization had the following cash contributions and expenditures in 2013”
The statement of cash flows should include which of the following amounts?
11. UST Hospital, an nonprofit hospital affiliated with UST, received the following cash
contributions from donors during the year ended December 31, 2012:
Neither of the contributions was spent during 2012, however, during 2013, the hospital
spent the entire P50,000 contribution on research and the entire P250,000 contribution
on hospital equipment which was used during the year.
On UST Hospital’s statement of operations for the year ended December 31, 2013, what
total amount should be reported for “net assets released from restrictions.”?
a. P300,000
b. P50,000
c. P250,000
d. P0
12. Miriam Hospital, a nonprofit hospital affiliated with Miriam College, had the following
cash receipts for the year ended December 31, 2013:
The dividends received are restricted by the donor for hospital building improvements.
No improvements were made during 2013.
On the hospital’s statement of cash flows for the year ended December 31, 2013, what
amount of these cash receipts would be included in the amount reported for net cash
provided (used) by operating activities?
a. P880,000
b. P800,000
c. P1,050,000
d. P750,000
13. Christian Hospital, a nonprofit hospital affiliated with a religious group, received the
following cash contributions from donors during the year ended December 31, 2013:
The cash received for acquisition of hospital equipment will be spent in 2012, while the
cash received for the permanent endowment was used to acquire investments during
2013.
What effect did these cash contributions have on the amount reported for cash flows
from investing activities and cash flows from financing activities on the statement of
cash flows for the year ended December 31, 2013:
14. For the 2013 summer session, San Carlos University, a nonprofit university assessed its
students P300,000 for tuition and miscellaneous fees, net amount realized was only
P290,000 because of the following reductions:
Tuition remissions granted to faculty member families P3,000
Class cancellation refunds 7,000
How much unrestricted current fund revenues from tuition and miscellaneous fees
should San Carlos University report for the period?
a. P290,000
b. P293,000
c. P297,000
d. P300,000
15. For the summer session for 2013, Mindanao State University assessed its students
P1,700,000 (net of refunds), covering tuition and fees for educational and general
purposes. However, only P1,500,000 was expected to be realized because scholarships
totaling P150,000 were granted to students, and tuition remissions of P50,000 were to
faculty members’ children attending the university.
What amount should Mindanao State University include in the unrestricted current
funds as revenues from student and fees?
a. P1,500,000
b. P1,550,000
c. P1,650,000
d. P1,700,000
16. The following receipts were among those recorded by Baliwag College, a nonprofit
organization, during 2013:
17. Love and Care, a nonprofit organization, received the following contributions in 2013:
I. P50,000 from a donor who stipulated that the money not be spent until 2012.
II. P100,000 from a donor who stipulated that the contributions be used for the
acquisition of equipment, none of which was acquired in 2011.
What is the increase in temporarily restricted net asset for the year ending December
31, 2013?
a. P50,000
b. 150,000
c. 100,000
d. 0
18. Gentle Care Foundation, a nonprofit organization, received the following pledges:
Unrestricted P200,000
Restricted for acquisition of equipments 150,000
All pledges are legally enforceable, however, the foundation’s experience indicates that
10% of all pledges prove to be uncollectible.
What amount should the foundation report as pledges receivable, net of any required
allowance account?
a. P135,000
b. 180,000
c. 315,000
d. 350,000
19. Bantay Bata Foundation, a nonprofit organization, receives revenue from various
sources during the year to support its child care center. The following cash contributions
were received during 2013:
What amount should Bantay Bata Foundation record as contribution revenues in its
2013 Statement of Activities?
a. P20,000
b. 25,000
c. 10,000
d. 11,000
20. During the year ended December 31, 2013, Cultural Center of the Philippines, a
nonprofit organization, received the following donor-restricted contributions and
investment income:
As a result of these cash receipts, the statement of cash flows for the year ended
December 31, 2013, would report an increase of:
1. D 6. B 11. A 16. A
2. C 7. B 12. B 17. B
3. A 8. C 13. B 18. C
4. A 9. C 14. B 19. B
5. A 10. C 15. D 20. B
The 10,000 contribution to be used upon completion of a new playroom is not part of
2013 revenue since the condition has not been fulfilled.
20. The receipt of cash from a donor to establish a permanent endowment should be
presented as a financing activity in the statement of cash flows. The receipt from
investment income that by donor stipulation are restricted for purposes of acquiring
plant, equipment, and other long-lived assets should also be presented as a financing
activity. Therefore, both items (105,000) are considered as financing activities.