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    NPE

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    of 17
    401 Chapter 16 Non-profit Organizations infeed from the foregoing statements, the as am Ped to all reporting entities regardless oftheir or A Noptosip. Parierhip, coperaon or btn te, Per (Les forprolt™ oe Marui ort to gal hens hat we lb aig peng liar to you 4. ot oe et ama ty pe the inte case of scouring for sole Sor Wabipe cxporons wn Sop oe fn et ecg a eee [Learning Objectives | expenses of NPOs, SHY, reves Rt Enumerate and describe the: = financial statements omen 4. State the accounting orn ning procedures peculiar ons SENPOx |g pendin practice Nes PE EE te econmtcg” fo nom geo apa’ : aay similar to the accounting for businesses. The notable Genes ar the terminologies used in the financial statement, Introduction Inhare modified to suit the non-profit organization's purpose, Although the IFRSS/PERSs are pit presentation and disclosure of equity. entities, they can also be applied te ore SRM” Neve ecpmzatons tthe ie seks a Sol i tonne orp opmizana ie Bis ii ay “evinced by be folowing excepts ram te | gO sock spr to file audited annual finandal statements to. the Seties and Exchange Commission (SEQ). In most cases, the ls reports in these financial statements state an opinion on trganizaion’s compliance with the PERSS (or IFRSs, for rational organizations), > TFRSs are designed to apply tothe ses and att Hane ee! PP ‘ample: Auditors’ Report Telling is an excerpt from an Independent Auditor’ Report ® published audited Gnancal statements of @ non-profit £04" opinion, the financial statements give a tre and fair view > TERS generally do not have scope limitations for notfor |e financial position of the Organization 23 3 December teed ny eM ISH eva gu | na ptm ve choca nities. notsfor-profit entity might be rem | ten ended in accordance it al corto ly ERSs. (085: BusinseConintions BO) oting Standards, ‘on-profit organization rane PORE eranizatony, getty | nytt gn (NPO) ~ (ao called matyrpoftenty ‘Accounting Plies, Changer a Aces Ped eg A gaz "NCOs one that cartes out ‘hierarchy offic ASG Etna gee S| ie neds ofthe community of ts members ‘where the PERSs are silent eo eS. For amy ee SE os are not directed towards making profi F financial statement presentation oye ong age | $e ain objective of NPOs may be educational, religious, "non-profit organizations te organi: mon pen een lcnartable, NPOs may be in the form of idles et forth under the Cone gay rte | Si attons, hospitals ad other heath care providers Ne Conceptial Framer, Bmead | ei ons, professional bodies, sports, social or literary Soi nor torm of chastablensitions. sn fevers sult to cover thee expnses. A «json of these revenies ane derived fom charitable a a olberfundaising activites. Surplus revenues do sore wo the bene ofa particule individual oF gPOUp of Siok bt ther retained in arterance ofthe organizations Tm Accondingly, none “of the surphis revenues, ae Tete os dividends Because NPOs carry out thelr actives fn the interest of sescety and without the intention of making proft, NPOs are sly exempt fom income tration Example 2: Modified Statement of compliance ‘The following is an excerpt from the notes fj a Note Saiement of oapanee Ths tinal aaa a ain vy too peop lated by ecto (USB) and interpretations ned ke enn Hpi Iepetons Conmie RO sea prenatal Regulations. = ‘a RS principles applicable to NPOs Assted earlier, the recognition, measurement, derecognition, Feenation and disclosure requirements of the PFRSS can be "plied to NPOs, Examples are provided below: + Reanition criteria for assets and liabilities: 2. Meets the definition of an asset or liability; . Protabie inflow of outflow of resources’ and © Reliable measurement of cost or other value (eg. fair value) Currently, IFRS do not contain specific guidance for nig organizations (NPO) concerning the acon eel Presentation of financial statements, Where IFRS ar ea) not give guidance on how to treat transactions specie et for-profit sector, accounting policies have been bad ee 8 general principles of IFRS, a8 detailed inthe ASD Co ramework, * Messrement of Asset or Listy 2. nal measurement atest exept when a relevant PERS requires measurement a slur some other value. Subsequent measurement at amortized cost, under the on maadel, or some other measurement model required by a relevant PFRS. 403 pions 4 Derecognition of Asset or Liability ‘An asset (oF liability) is derecopnized provide inflow (or require outflow) of i curing for nonprofit organizations economic benefits, The Sanuedl ‘vs. Fund accounting amount and net proceeds (or net cov neon ements of mest NPOS are based on the fend settlement), te theory stresses great importance on the custody recognized in change in net assets, Peory. The fd i ecg he eee rae a A Ta pen’ ipo ae ano EA ta ene fal mr fe Sn 1 a eS er fe ial eet eer ee ee fee erent ean eiey aren ec ‘© Presentation of Financial Statements: General features: Fair presentation and comy Going concern, Accrual basis, Material and Offsetting, Frequency of reporting, Comparative and Consistency of presentation, g (ur succeeding discussions on the accounting for N in part on the accounting principles specifically p US. GAAP Statement of Financial Accounting for FAS) No. 116 Accounting for Contributions Contributions Made and SEAS No. 117 Financial {for-Proft Organizations. ‘Although these principles do not have the fas those of the PFRSs, they may be adopted conjunction with the PFRSs (to the extent contravene the provisions ofthe PFRSs) in order to useful financial information to users of NPO final Moreover, CPA board exam questions on aco have traditionally been based on these principles. ind teory-based financial Find accounting-based statements {financial statements + Focises on the reporting |» Views the enity as being made up of component parts; thus, the accounting Units are the various funds held, ‘Adhosesto the accounting |» Adhere tothe bookkeeping, Pointof-view of prov point-of-view of providing, Various illustrative financial statements ‘seul information to useful information to the next chapter I encourage you to notice later nF extemal users managers, GAAP principles are incorporated into, PERS The term ‘fando"To mare [© The term “Fonds Te used to statements. commonly wed toreterto | referto specific funds ‘All throughout our discussions in this hap (he net assets consisting of cash and other oncash asses Focuses on classifying sets, net assets, an in the ‘ the term “non-profit organization (NPOY' 10 profit organizations inthe private seta. Those publi sector (eg, government ents) ae ou Chapter. They ae discussed in the Government. thie bok Provides disclosures onthe [= types of restrictions on net ses and revenues ( changes mstictlyin | unrestricted rested emporaiy sion and measurement restricted, or permanently etn ts i ann =o penta NOW IE cived a5 contributions af er noe acre expenses depending on the ‘Setions are measured at fi om aseither: and ae reported oe SBomael apport venve om swoon Ce 1 Euttted pport~ revenae from temporary restricted penny ced contrbtons srt og pea 7 ived and as assets, the period received restricted). cota form of the Current trend ir value at the date of Contributions A majority of the sevenus contributions or donations. Contributions refer to resources received in fransactions. Contributions exclude thos thet exchange transactions (Le, resources received in we ‘esourees of obligations), SFAS 116 classifies contributions. based restrictions as follows, # of NPOs come from gh ‘Temporaily restricted contributions whose restrictions are ‘mtnthe same reporting period may be reported as unrestricted, ‘ppt proved that the NPO discloses this accounting. policy "split consistently from period to period. Unrestricted support increases unrestricted net assets while ‘ssid support increases either (a) temporarily restricted net ‘st or(b) permanently restricted net assets. 1. Unrestricted ~ available for immediate use Purpose, ‘Temporary restricted ~ restricted by the donor in that the availabilty of the contribution for the NE dependent upon: the performance ofa specific task; Db. the happening ofa future event-oF © the passage of time "station 1: Unrestricted support AAnoe-proft ganization receives cash of 200,000 and land with Sr value of 000,000 to be used at the entity’s discretion, ‘The temporarily restricted contribution i eal ‘organization when the task is performed, the eve for the time restraint passes. At that time, the reclassified from temporarily restricted tun Contributions revense — ‘unrestricted support To. recor reap of unrestricted onto ofa a ed astation 2: Restricted support January 1, 201, Eni 3. Permanently restricted ~ reste bythe dona 19 Aa non id ne ‘he olowing donations Post organization,seceiveg that the organization will never be able to use the Itself; however, the organization may be abe income thereftom. os Cash of ®2,000,000 a Sect tt tg * Investment in equity seeurtie wate a fale value of» tment come dal On December 31, 201, Entity 4 2,200,000 and receives cash dividends. conan ne ream dividends of 60.000 fen seep which depend on the occurrence of in event to bind the promisor, are ‘ched conditions are substantially ‘omise becomes unconditional). A considered unconditional if the raion will not be met is remote (that is the set pecoulitins willbe mets feasonably certain). ee of assets with a conditional promise to A tom tbe acounted for as a refundable advance 5 Cart bey sent ; ise 1 give he the atta conditional Pr Eso! ty hat Gah eS - conditions have been substantially met. Contato ren- | BET ma ite nto ‘ temporarily restricted support % 4 Se cian Sei eacma ene aed ee ad om mar ee 3 x Contributions revenue Bs indent PLANO permanently restricied support donation is unconditional and is'to be received on ren rac ee ne Ss restricted donation a i 2 5 Rapa Tak Ea fe "pent = as ae ca = Serres ‘nom Bs | Cash 000 acy es 7,000,000 _5 an | _ Dividend income Js, _Ponations receivable 1,000,000 Unconditional promises Unconditional promise to give cash or other non-cash future period is recognized when the unconditional give is received from the donor. Generally, such promise is classified as a temporarily restricted contribu Of the time restriction (i.e, to be received in the event that the promised contribution becomes collection, an allowance for uncollectability is recogni When the effect of time value of ime value of money is material, “Sis shall be measured at present vale, fa donation is conditioned on the submission of a mal plan for 8 proposed project. As of January 1, 20x1, snot yet substantially complete. No entry a ee ee The cond ee "© conditional promise i attached condition will be similar tems ‘ rade aE Bn ant Oot ef ra Case 3: (Use the infomat {a acts if the donated items are added to A receives. the rea Cas 2 ahve) On Fey a eal ofthe ollosing conditions condition is substantially met ont eatiOn. before the Sens Tpublic exhibition, education, oF research in [See ‘Src Sept nencutered, cared fr, and preserved and az |___ Unity for rtandable vane » Pome rom sales of collection items are to be used to Mir other tems fr collections. (SFASNo. 11610) ‘The eason for the non-recognition as an asset or revenue Contributions of services are reco sth, when al ofthe conditions above are met, the work of art & create or enhance nonfinancal usenet “pen (SI ien) dos not met Ow PPRS st rengton C ee *F i ." Moreover, the financial rie spec TI Ses yt connie tna” Moore, Possosing these al ange eve by ina te none of may beac tomes relay. Purchased not provided by donating, mea 9 Incase however, here a work of at (or similar item) 'Y donation. q nes all of the recognition eriteria for an asset, the work of art is dts and rene measured va cane PN Ped ae ae priniomeet = architects, carpenters, doctors, electron ‘nurses, plumbers, teachers, and other professionals Contributed services and promises to give ‘Rot meet the above criteria are not recognized. gra stration: Fund Accounting Eni A receives the following donations: Unrestricted donation of PIM cash. 5. Cash of P2M restricted for the acquisition of a building © Investment in stocks of 93M. Entity A can only use the investment income, Mlustration: Entity A, a non-profit organization, received Carpenters repaired the ceiling of Entity A's o ‘The fair value of the services is ©20,000, Entity A acquires @ building for P2M and receives Usdends oF #100,000 from the ivestment at the end of the od. b. JPA members from various universities help planting activity initiated by Entity A for fre. Ts Reqirement Recond the transactions above under ‘a. find ‘ofthe services might be P50 ‘counting system, aw [Repairs and maintenance expense Contributions revenie ~ unrestricted suppos Nocntry __ Solution: Under fund accounting transactions a Fe recorded ina a ifthe organization is divided into ts com h journal entries manner "POMENE parts, a, te {unde Accordingly, transfers between the fangs ae age accountable evens that are recorded through xaonal ‘The net assets released from restrictions is shown in ie | fandshld by NPOs insament nd ~ classified into the followin, Unrestricted fund Temporarily Berney) | me elsif no thes restricted find | nena || emir fd under the don’ restaiong te Seances M | _Constuon see] "Counter | Scie as opr restricted, Tah IM | Net eset ale to bomen fend ~ ender te dens rey ‘NetAsstsReeoned | rom Retlcions 2M tions, foaRenicionta| eaten 3 | fe NFO camuot ‘spend any of the Principal. This is Par ie Aste as pernamentiy esrcten ‘elf temoy |e” fo my reco retin ata ter tern or regular endowment und ig Balding Bi Socasing to the donor's instruction, cat a car TE eft — Drader incone nk funds held by the Ni Py funds. vee PO acting as a custodian. are recognized a s liabilities. For example, an Ssaision on tO" May receive funds trom the scien of activites (prepared using SFAS No. 17 fonts JI” Higher Education (CED) dee decrease in temporarily restricted net assets and an increas unrestricted net assets. The balanes of net asset ae determin | as follows: Frau | Pom 88 of the following “Temporarily Permanent feng “S funds forthe acqui ition of plant assets; Unrestricted stricted is_| bess *MEWal and replacement of plant asset; net assets Te petal setae Ftizement of indebtedness; and 2S Ne ent in plant assets, Cash: : Cash donations 1,000,000 2,000,000 nated fend ¢ s endowment) = funds. which Transfer between fund ferred at the sole me the NPO's governing fi ole discretion of classifications 2,000,000 (2,000,000) Mug, PO8rd of Trustees). Funds that ae internally Payment forbuilding (2,000,000) k Cash dividends 100,000 Cash, end. 7,100,000 Investment in stocks ipa asSified as unrestricted. Only contributions “Posed restrictions are clasified a ested. Aa aus Treating the various funds held by an NI PO as accounting units can ake accounting cumioraong $e SE No. 117 and the PFRSs do not requite fund scewunn SAS lustration 1: Classification of contributions ‘An NPO disclosed the following: a. Net resources of 1,000,000 invested in plant asset, b. Board-designated funds of P600,00, & Received 920,000 cash from a donor who did not use restrictions on the contribution. However, tie ag specified thatthe donation should not be used until ha 4. Received #600,000 from a donor who stipe ta contribution shall be invested indefinitely and ‘earnings shall be used for scholarships. Investment 201 amounted to 950,000. Requirement: How much of the items listed above included in (a) unrestricted, (b) temporarily restricted permanently restricted net assets, respectively? Solution: Tomporariiy stricted met assets Unrestricted et assets 200004 50,000" (perc or ahstarhps + Contributions revenue 2 te following during 20x: sales of calendars, mugs, Tshirts, and ‘The fair value of the items sold is yon no eee yn proceeds from ot oe ir items. rer souvent i he cost is 050,000. sant wile Fel to be asd only upon the completion of a new army tt is only 30% complete as of December 31, 20x I a ea ak bees ae pie over tivalectiemassld——asem9 ‘smn rt cnation eens reed m0 Fo treated as Only the excess of sale price over fair value is t ‘contribution revenue. The P7500 fair value i treated as sale revenue from exchange transaction. +The 91,000,000 donation is initially recognized as a fabiity (refundable advance) and recognized as conteibution revere nly when the condition is met Nsoion3: Net efectonnetasets NPO had the fllowing transactions during 20 1 Revived. 2 200,000 contribution to be used for research Purposes, Of this amount, P120000 were expended during the 3. Expended 950,000 in research activites from a P4000 research grant received in previous = urement: Determine the 20! effects ofthe transactions in Masses, au cimediary between donor and donee Se Inte lp patents find donors a blood. The NPO se oxmed to el maa apap | BAFO Fm re ccept blood donations Instead, Unrestricted 5 nk and “ood Bi —___neaaes Rae 2B list of blood banks that are interested in “Dana went ane ro msi ‘lan dnations. The ood banks Netants lsd fom eee themed patients a ee ya eet spa i uns Po bleed. banks. Without the referrals, the “sesould ave pet PIM Oe syonents How much is the NPO's contributions revenue? restrictions 30,000 se Expense (50,000) paseo may eae tested soe Se i aie ee Oe awe [Net effect in net assets, 0x1 Tol not effet in net assets - 201 Notes % Transaction (a) increased the temporarily restricted net in 20x1 by 950,000 but has no effect on unrestricted net sss, % Transaction (b) decreased the temporarily restricted net ass in 201 by 850,000 but has no effect on unrestricted net station 6 Endowments |Adanor establishes a PIM fund ina third-party trust company in ‘aor of an NPO. The NPO cannot withdraw the fund but is tied to any investment income thereof. Ilustration 4: Receipt of resources as an Agent ‘An NPO received relief goods to be distributed to flood 4 specified area, The NPO has no discretion in deter Parties to be benefited; it must deliver the reso specified beneficiaries (Le, flood vietims). The relief go fair value of 109,000. How much contributions reveniie recognized on the goods received? “uinment: Prepare the journal entry to record the event in the NOS books. Aso: © journat entry shall be made because no asset has been ‘scived, The event is recorded through memo entry. A journal ‘ty will be made when the fund earns investment income, Answer: None. The NPO is merely acting as an ag recipient of goods to be distributed to specified beneficiaries), 4a as Ilustration 7: Endowments q (On January 1, 20x1, an NPO receives £100,000 cash under a “charitable remainder annuity trust agreunesg following provisions: " +) The NTO is the designated trustee who undertakes the cash donation and make annual yearend 000 to Mr. A, the annuitant, fr the remainder ‘+ Upon death of Mr. A, the NPO may use its, for any purpose consistent with its mis Per actuarial valuation, the appropriate discount and the annuitan’s life expectancy is 5 years. “Requirement: Prepare the entry on January 1, 20x, Solution: Ta | Cag ‘Annuities payable Contributions revenue ~ temporarily restricted support 100,000] © (3000 PV of ondinary annuity of 10% ne5)= 18954 © op00- 18951)-81.046 Note: The transaction is partly an exchange transact ‘ contribution, The exchange component is recognized (annuities payable). This is subsequently measured at ost. The contribution component is recognized as restricted support because ofthe ‘time restriction.” Deferral method of recognizing contributions Im its publication titled “A Guite to Financial Statements Profit Organizations ~ Questions For Directors to Ask,” he Accountants of Canada suggest a “Deferal accounting for restricted contributions received by ns aa fect art toda srr tthe provsons of PAS 20 The i Couvernment Grants. and Disclosure of Government ct way that income from donations is recogized arg ome” iipder the “deferral method,” restricted contributions are jae Ubi (Le, Ged ran) od ay tas revenue in the same period where the related er hae combs wee medal eee weincued, thattion: Deferral method ~ Canadian GAAP te February 15, 20x1, an NPO receives ®2M cash donation «nlitoned onthe acquisition ofa truck. cy 2.000000 | Deferred revenue 2,000,000 ‘The NPO acquires a truck for 92M on January 1, 20x2. The ‘nck will be depreciated over a 10-year useful life using the Stighine method, [2] Tensportation equipment = track] 2,000,000 Cash 2,000,000 ® [Drpredaton expense @xisioyay | 200800 si | "Accumalated deprecation 200,000 & [Beer revere 00 [2s | Contributions reveme 200000 pe deferral method” parallels more the prindples under the RSs. However, we willbe using the principles of SFAS 116 and 1 unless otherwise indicated, because Philippine CPA board {vetonson NPOs have wana Btn based on thee me Financial statements A. complete set of general-purpose financial stat consists of the following: PERS tod on SCT pis euited [nancial statements) [eNotes ‘Statement of financial postion The statement of financial position shows liabilities, and net assets, Classification of Net assets SFAS No. 117 requires reporting of net assets inthe: Financial position according to the following classfieaton Unrestricted net assets 2. Temporarily restricted net assets 3. Permanently restricted net assets PFRS-based financial statements may present using the classifications above either on the statement Position or inthe notes. Statement of activites The statement of activites shows information on 1 expenses, and changes in net assets fora period. This takes the place of the income statement and statement |mequity for a business entity, However, NPOs may opt a separate statement of changes inet assets (o changes in reserves). This separate statement takes the statement of changes in equity + Statement of financial] —pestion —__ | Statement of activities ‘+ Statement of cashflows requires that the statement of activities FAS NO ets foreach ofthe three categories of Memes ofan | get ANNE unrestricted, temporarily restricted and see separately sft restricted). SFASNo.7 0 eel financial statements may present changes in vn the classifications above either on the statement of Statement of finanday sats using ein the roves. sition “es i ree fatement of activities, the term “profit” or “net 2 feplaced by the term “change in met assets.” rO adopting the PFRSs shall apply PFRS 15 Revenue fox Cmts wilh Customers for revenues arising. from sons other than charitable contributions. infomation is emt SRI ert of activites shal report expenses a8 creases in tei net ase SAS No. 117 requies expenses to be presented inthe sens of activites or in the noes according fo tee function ‘iuntonal asfications are as follows: 1 raga series ~ are Un activities tat result n goods and sevice being. distibuted to Benefiaris, customers, or ‘enbers that full the purposes or mison for which the Sxpniation exists. Those services ae the major purpose for 24 the major output of the organization and often relate 0 ‘eval major programs Supporting atts ~ are all aves other han program ‘evies. Generally these Ince management and genera, sgttttasing, and membership-development activities SN 726) {sstaion: Funetional classification of expenses NTO had the flowing expenses during the Year Administrative salaries 50,000 Work to help elderly citizens 150,000 Fundraising costs 25,000 Child care services provided for indigent families 140,009 =~ red 6 The expenses are lassified according to function ag follows, ea cits ‘inate Bap et tributions 50.000 Work to help eldery citizens ‘i SO te to support current operations 600,000 Pantin co a re re Gide pon digs Bo ee ae _— 122 ‘. 2. stg cites = ee “20m000- Statement of es flows “ The statement of cash flows ofan NPO is simi Similar to ta busines entity and can also be prepared indirect method. sag Restricted ase aquired during the period that for long-term purposes because of donot resteeig a as financing activities, inacing activities aio rai Cahdividends restricted for acquisition of equipment 200, manent restricted contribution 300,000 tash flows from financing activities 500,000 int cash lows during the period 1,050,000 Mlustration: Statement of cash flows An NPO had the following cashflows during the year 8, 50,000 unrestricted contributions. . 600,000 from fundraising activities to. support operations. © 100,000 from a donor who stipulated that the money b {in accordance with the wishes of the NPO's governing! 4. 200,000 cash dividends restricted for the pi ‘equipment, © 200,000 on acquisition of equipment using the cash above, £ £300,000 from a donor who stipulated that the conte invested indefinitely. Income from the contribution: ‘used in furtherance of the NPO’s mission. ‘counting procedures peculiar to specific types of NPOs The prindples that we have discussed so far apply to all types of APOs In this section, we will discuss accounting, procedures 'igue to specific types of NPOs. For this purpose, we ‘blivide NPOs int the following: 1. Health Care Organizations Private, non-profit, Colleges and Universities Voluntary Health and Welfare Organizations Other non-profit organizations tah Core Organizations alts Car Oration ine opal iis ee pekaat Petes, individual practice assoitions, Individual tones, emergency coe fii, otis mr eather ambulatory carr organization ae ‘ement communities, health maintenance rgaieton “eth agencies, nursing homes, and rehabiation —_aa_ Requiement: Present the items above ina statement of cash racmeniine eth onan 4. Disclosure of performance indicator = coxample the hospital may consider P6000 fair price samy agrees with Phiealth to accept only 958,00 ee of 200 represents the contractual adjustment vie pen off 38 a diect reduction to patent secce ich is eo ea 1 sani ny ate NO ieee Pediat amily members) in the form of reduction pi Epler dean nn rae Financial statements of a health care organization According to the “AICPA Audit and Accounting Guide, Care Organisations," heath care onganiztions shall prep following statements * = ‘Statement of financial position State..ent of operations (in liew ofa statement of Statement of changes in net assets Statement of cash flows, and Notes tothe financial statements ty ere uty care pertains to free Services rendered to patients. Charity, sseisnot recognized but rather disclosed only inthe notes. station: Net patient service revenue ‘5C Hospital, an NPO, bills 600,000 for services rendered to suis, 9500000 of which is charged to PhilHealth. It is simated that only 530,000 will be collected. Of the 70,000, irene, 35,000 represent contractual adjustments with ileslth, #5,000 for employee discounts, 20,000 for charity and 10,000 for uncollecible accounts Presentation of revenues in the statement of operations Revenues in the statement of operations are classified following a. Net patient revenue ~ gross patient service rev contractual adjustments, employee discounts and Wile Premium revenue results from capitation agreements © Other revenues ~ all other revenues not classifiable patient revenue or premium revenue "uoment: How much is the net patient service revenue? fig! Patient service revenue ‘600,000 **Conteactual adjustments (95,000) Employee discounts (600) Contractual adjustments ‘A portion of a hospital's revenues is collectible from payors, such as the Philippine Health Insurance Cot Charity are (PhilFfeaty and other health insurance provides. In his ayaa 20000). 2 contractual adjustment may arise frm the we rice revenue ot agreement. ‘A contractual adjustment isthe difference bl ta the hospital considers fair price fora service rendered agreed upon amount for the service with the insurance ‘The uncollectible accounts are recognized as expenses (i bt expense) rather than a direct adjustment to revert a 426 Journal entries: Account ecblepaten a i Acunisrecbie-Phitey | Patient service revenue a Patient service revenue Accounts receivable ~ Phill¥ealth To recognize the ‘stents representing aunts yr, ‘ecole from hie Patient service revenue Accounts receivable — patients To roluce patent serice special discounts allowed tocmpoyes Patient service revenue ‘Accounts receivable — patents To reduce charity care 35.000 contract ected a0 revenue for Patient service recone for Allowance for doubtful accounts s _Toncerueuncsecibe accounts ‘Bad debt expense Capitation agreements 3 Capitation agreements are agreements with thitd parties the number of employees instead of services rendered, 17 requires revenues from capitation agreements Separately on the statement of operations under the “Premium revenue," which is a line item below Musteation: Capitation agreement ; ABC Hospital, an NPO, agreed to provide medial XXZ's 100 employees for B500 per month per empl 201, only 20 employees availed ofthe medial services Requirement: Provide the entey to recognize revenue f capitation agreement. a7 2 ants receivable (10% 500) 50000 ‘Premium revere | Toacere tilings forthe moth of pit 1 une th capitation agreement. 50,000 [Notice that even though’only 20 employees availed of the sis the total amount due on the contract i accrued, be wes cat of crue te ah pb a vous and premium revercs. Examplr atheros fe te opls pharmacy, puking deck flower and gi stop seatial programs donated meters and evans "astaton: Other revenues 48C Hospital, an NPO, had the following transictions during the ood ¥ Sls of 120,00 from git shop and cafeteria, * Received 20,000 dividends from donated shares. The use of the dividends unrestricted. A-computer consultant upgraded ABCs information sytem fr fee, ABC swould have paid P50,000 for those services if ‘hey had not been donated “eived donations of medicines worth P1000 from 2 ‘Pharmaceutical company. [atement: Compute for the total ther revenues to be presented “ARCS statement of operations forthe period Satin ‘ts from gitt shop and cafeteria 120,000 Phvidends received it Professional services received a ated supplies mn ther revenues ae a 29 ee ee ee Pratt of cotton hitmen tng nates o agmantn ws nt TO heals ae ozs de ng a sl elomance nator, but shal be port rete cantons ote see 5 ts Pe nvof operations after the performance indicator. rations revenues. The revenues discussed above (Le, net sss Paltof i, Suse above (ie net patent reveris premium revenues and other even) an ites Seite emacs and may cde neonate ont Coles and ive unrestricted contribution, ‘fh aga [ee a cing tse aa ire provided below: seats Peta a tel ee fey a te alg ets oe ae aa ie oe ee Scorer tpl ec eae a Sine nea "tia ene aly er are contributions may be separately indicated as such o. inte in the other revenues classification. Revenies rom rested conto apy Separately tte bottom part ofthe statement of opera “unrestricted revenues and expenses. a Mlustration: Restricted contributions ABC Hospital, an NPO, had the following 1 receipts d year: Refunds of tuition fees from class cancellations and other Net patient revenues withdrawal of ehrolment are treated as direct reduction of Premium revenue evens from tuition and foes. Sales from canteen Investment income station: Net revenues from tuition and fees the current semester, ABC University, an NPO, assessed its és P,000,000 for tuition and fees. Additional information ows Contributions to be used in renovating the Hospital Requirement: How much is reported as totat ‘evenes section of the statement of operations? Sent scholarships granted o academic scholars 50,009 ‘scholarships granted to student assistants 120,000 {nds for class cancellations and withdrawals of ferment ‘Smated uncoectible accounts Asiver: 1,550,000 (IM + 200K + 300K + 50K). The contribution is presented separately from the revenues the statement of operations 20,000 180,000 Disclosure of performance indicator "eirement: How much isthe net revenues from tuition and fees? According to the AICPA Guide, the statement of oper provide a performance indicator, such as operat revenue over expenses, etc. The policy used in det performance indicator shal be disclosed in the notes. Satin ve N ‘Tota assessment of tition and fees Student scholarships Refunds for class ca ‘ole [Net revenues from tuition and fees — Bay eI ‘The othe tems are recognized as expenses, Voluntary Heath and Welfare Organizations Voluntary Health and Welfare Organizations (VE oli is tht dere th rae pinay ae a from the genera pubic o be used for purposes concn health welfare or community series. Eaples ince and cles heath and welfare soit, human gay advocates environmental protection ‘orgaizaon, ae, organizations, museums and ther eultal and as eta Ura ‘esarch “and scenic foundations Pree sociation, private elementa sox fratemal organizations 7 Se et What distinguishes a VEWO providing teal ax ‘vi from a Health Care Organization the sou ofan rather than the type of services provided. A'VHWO deste is fevenues from donations from the general pubic whl s Hall (Care Organization derives it evens from patients provi RENE Feuiement unique to VHWOs be rovision of a statement of functional expenses thal ep ‘@penses by both functional (.e,, program and supporting) sd ‘natural classifications (salaries expense, deprecation expos £tc). According to SEAS No, 117, the statement of func ‘expenses is useful in associating expenses with service efforts aed scomplishnents the oganeeg 431 one ents for apply to other 2 ems fr NOs ey tions. Thus, there are actually no accounting, sng for other assets held by NPOs seni cate te general principles of PFRSs apply 19 or acd an NPO shall Ss3Zip sca bas of accounting, in alton tothe other rw ature provided under PAS Apply RS 9 Func Instruments (or PERS for SMES, Sppmptiie) for financial assets and financial. habits. Cell, NPOs account for marketable securities at fae valve sh chnges in fair values recognized inthe statement of {vis similar fo EVPL securities dhe FVOCLcssifeaton ‘mat applicable to NPOs adopting the PERS for SMES). Under SEAS 124 Accounting for Certain boestnents Held Soto Prot Organizations, the marketable secures of an WO, consisting of either equity or debt instruments, ae ease at fir value. Changes in fair values are recognized nthe Satement of activities, Also, marketable securities can Se cssied as either current or no-cure! abuts, SEAS 124 docs not apply to investments which raul 1 significant 'suene ‘or control. Accounting. Principles Board (APD) “pinion No. 18, also a US. GAAP, requires the use of the ‘“quity method for investments held by NPOs that result to «Secon influence recat its depreciable asses in accordance with PAS 16 . Property, Plant and Equipment. Tesojnize impairment Toss in accordance with PAS. 36 !nsirment of Assets when an assets carrying amount exceeds ._*Stecoverabl amount Account for eases (other than those qualiying a8 ‘ontributions) in accordance with PFRS 16 Losses. Chapter 16 Summary: ‘+ Although the PFRSs are designed they can also be applied to non pref Non-profit organizations cary oat the community or its members ‘making profit NPOs ean be daca Health Care Organiza al and universities). Volanag ne © A ——__ ‘apply to business it organizations, a Socially desirable. = oe sve the lino a on (3) Voluntary Health iss rnihors (Oberon a a giana Sa Contos wre dase edn ener ag = )mmestcte, @) temporany “ones Sh Pemany eed, ‘hea net applied to the net assets, Internally-t mia ‘ried ete Unendions| promises t> give cnt re cont sscogize wher the promises waioad he Centon promi ae teognid ean te pevornane ‘oth atached een geny oan Cash and ther nana sais rece wl fe milgeeed ov Unt ool = Services in-kind that enhance a non-financial requte specie sls ae rege Capea Oto seis ae not Works of anand sr he ol sd sen wot recopaed nls thy et opilon cone Contos rere by an NPO aig at ropa abies Net ects leased from resclns se deamte i tempor Trond ne fies Otdwured ete MROBLEM 16-1: Ip sf “me 1) 5

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