ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 43  May 2022 CPA Licensure Examination  Weeks 16-17

ADVANCED FINANCIAL ACCOUNTING & REPORTING A. DAYAG  C. CAIGA  M. NGINA

AFAR-20: NOT-FOR-PROFIT ORGANIZATIONS

Accounting Principles Applicable to Not-for-Profit Organizations/Entities
Not-for-profit organizations account for revenues and expenses using the accrual basis of accounting.

Classification
The organization’s net assets, revenue, expenses, gains, and losses are classified according to the three classes of net assets.
This division of net assets into unrestricted, temporarily restricted, and permanently restricted classifications is the core of the
financial statement presentations for not-for-profit entities.
Two major sources of revenues in Not-for-Profit Organization:
1. Contributions, and
2. Regular type of revenue such as tuition fee for schools and universities, patient service revenue for hospitals, membership
dues, sales of publications and supplies and program service fees such as advising for voluntary health and welfare
organization
➢ Only contributions are subject to RESTRICTION since they are imposed by the donor, while the regular
type of revenue is unrestricted or even though restricted but made by the board of trustees it is
still classified as unrestricted since the board can lift anytime such restriction.
➢ Contributions are considered as non-exchange transactions which may include cash, securities, land and
buildings. It also includes noncash items or gifts in kind such as free or discounted use of facilities or utilities,
donated materials and supplies, intangible assets, and services of unpaid workers.
➢ Exceptions to the general recognition provision are made for contributions of services and donated
works of art.
➢ Donated services are recognized only, if they:
1. Create or enhance nonfinancial assets, or
2. Require specialize skills, are provided by individuals possessing those abilities and typically would have to
be purchased if not provided by donation.
All of these items are recorded at fair value at the date of the gift or donations were made. In the case of
noncash gifts, a corresponding expense is recorded.
➢ Revenues, gains and losses can be reported in each net asset class, but expenses are reported only in
the UNRESTRICTED NET ASSSETS CLASS.

Restriction versus Condition

➢ To be considered as restricted, it should be imposed by the donor.
➢ Condition on the other hand, is necessary whether to recognize such as donation as:
• Revenue, or
• Liability
➢ Restrictions made by donor may either be:
1. Permanent, or
2. Temporary
➢ Reclassifications of net assets results from expiration of donor-imposed (temporary) restrictions.
Permanent restriction does not result to reclassification.
➢ A temporary restriction expires when:
1. the stipulated time has elapsed (TIME restriction)
2. the stipulated purpose has been fulfilled (PURPOSE restriction)
3. the useful life of the asset has ended.
➢ Donor-imposed conditions do not result to reclassification . The moment the donor-imposed condition
is satisfied, and the promise to give assets becomes unconditional the only effect is to increase the
classification of the NET ASSETS depending on the restriction placed (whether unrestricted, temporary, or
permanent)
➢ An unconditional promise to give is reported in the period the pledges were made or receive , not
in the period of cash collections.
➢ A conditional gift of cash or other assets that may have to be returned to the donor if the condition
is not met, should be accounted for as a refundable advance (liability)

Financial Statements
Not-for-Profit Organizations provides a set of financial statements that includes:
a. Statement of Financial Position (balance sheet),
b. Statement of Activities,
c. Statement of Cash Flows, and
d. Accompanying notes.
Voluntary Health and Welfare Organization also must provide a Statement of Functional Expenses. This statement
reports expenses by both function (program and supporting) and by their natural classification (salaries expense, depreciation
expenses, etc.)

Page 1 of 18 0915-2303213/0908-6567516  www.resacpareview.com

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY AFAR-20
Weeks 16-17: NOT-FOR-PROFIT ORGANIZATIONS

However, Audit and Accounting Guide for Health Care Organization, the basic financial statements for
HOSPITAL includes:
a. Statement of Financial Position (balance sheet),
b. Statement of Operations (or Statement of Activities)
c. Statement of Changes in Net Assets, and
d. Statement of cash flows
The goal of the reporting requirements is to establish consistent standards for reporting basic information for the
organization as a whole.

Classification of Net Assets

The reporting requirements are based on the division of net assets into three classifications. These classes of net assets are totally
dependent on the existence or absence of donor-imposed restrictions. The three classes of net assets are:
• Permanently restricted net assets are the portion of net assets whose use is limited by donor-imposed
stipulations that do not expire and cannot be removed by action of the not-for-profit entity.
• Temporary restricted net assets are the portion of net assets whose use is limited by donor-imposed:
o stipulations that either expire (TIME restrictions) or
o can be removed by the organization fulfilling the stipulations (PURPOSE restrictions).
• Unrestricted net assets are the portion of net assets that carry no donor-imposed stipulations or
eventhough restricted but imposed by the board of trustees.
I – Multiple Choice : General Concepts
1. Financial statements of Not-for-Profit Organization, focuses on:
a. Basic information for the organization as a whole.
b. Standardization of funds nomenclature
c. Inherent differences of not-for-profit organizations that impact reporting presentations.
d. Distinctions between current fund and noncurrent fund.
2. A large not-for-profit organization’s statement of activities should report the net change for net assets that are:
Unrestricted Permanently Restricted
a. Yes Yes
b. Yes No
c. No No
d. No Yes
3. Net assets that are restricted by the governing board of a nongovernment, not-for-profit organization are reported as part of:
a. Permanently restricted net assets
b. Temporarily restricted net assets
c. Unrestricted net assets
d. Either permanently restricted or temporarily restricted net assets, depending on the term of the restriction.
4. Unconditional promises to give are recognized as contribution revenue when:
a. The promise is received.
b. The related receivable is collected
c. The time or purpose restriction is satisfied
d. The future event that binds the promisor occurs.
5. How will a nongovernment, not-for-profit entity record an agency transaction in which it receives resources?
a. No entry is made in the accounts.
b. Debit the asset account and credit contribution revenue
c. Debit the asset account and credit temporarily restricted net assets
d. Debit the asset account and a credit to a liability account.
6. The Jones Family lost its home in a fire. On December 25, 2018, a philanthropist sent money to Amer Benevolent Society, a
not-for-profit organization, to purchase furniture for the Jones family. During 2019, Amer purchased this furniture for the
Jones family. How should Amer report the receipt of the money in its 2018 financial statements?
a. As an unrestricted contribution
b. As a temporarily restricted contribution
c. As a permanently restricted contribution
d. As a liability
7. Alice makes a cash gift which has no strings attached to a political party. It is recorded as:
a. An Endowment.
b. Revenue-Unrestricted contribution.
c. Revenue-Temporarily Restricted Contribution.
d. An increase in the fund balance of the General Fund.
8. Atlee makes a cash gift to a not-for-profit local ballet company which is designated by the donor to buy costumes for a new
ballet staging. It should be accounted for with the following journal entry:
a. Cash xxx
Revenue-Unrestricted Contribution xxx
b. Cash xxx
Revenue-Temporarily Restricted Contribution xxx
c. Cash xxx
Revenue-Endowment Fund xxx
d. Cash xxx
Revenue-Permanently Restricted xxx

Page 2 of 18 0915-2303213/0908-6567516  [email protected]

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY AFAR-20
Weeks 16-17: NOT-FOR-PROFIT ORGANIZATIONS

9. A major corporation makes a donation of $10,000,000 to the local art museum foundation for the construction of a new art
museum provided the community can match the $10,000,000 with other donations. This is an example of a(n):
a. Unconditional Pledge
b. Unrestricted Contribution
c. Conditional Pledge
d. Endowment
10. Government grants that require performance by the not-for-profit organization will be accounted for as:
a. Revenue-Unrestricted
b. Refundable deposits until earned, then Revenue-Unrestricted
c. Revenue-Temporarily Unrestricted
d. Endowments
11. On the financial statements of a not-for-profit prepared, the term "fund balance" has been replaced with the term:
a. surplus/deficit
b. Net Income/Loss
c. Net Assets
d. Net Equity
Private Universities/Colleges
Accounting for Revenues:
Private Universities and Colleges had three major groups or revenues:
Educational and general revenues group, with accounts for:
➢ Student tuition fees; Government appropriations; Government grants and contracts; Gifts and private grants;
Endowment income
➢ Other sources
Auxiliary enterprises revenues – includes amounts earned in providing facilities and services to faculty, staff, and
students, charges for residence halls, food services, intercollegiate, student unions, dormitories, as well as sales and
receipts from college stores, barber shops, movie houses, etc.
Expired term endowments – arising from reclassification of temporary restricted to unrestricted.
Accounting for Expenses:
Educational and general revenues group with accounts for instructions, research, public support, academic support,
student services, institutional support, operation and maintenance of plant and student aid expenditures.
Auxiliary enterprises expenses – these are related to auxiliary enterprise revenues.
Fund Groups – universities / colleges use these fund “groups” and major fund group “subdivisions”;
Fund Groups Major Subdivisons
1. Current Funds a..Current fund – unrestricted
b..Current fund – restricted
2. Loan Funds
3. Endowment and Similar Funds a..Endowment Funds (“pure”)
b..Term Endowment Funds
c..Quasi-Endowment Funds
4. Annuity and Life Income a..Annuity Funds
b..Life Income Funds
5. Plant Funds a..Unexpended Plant Funds
b..Funds for Renewals and Replacement
c..Funds for Retirement and Indebtedness
d..Investment in Plant Fund
6. Agency Funds

Current Funds / Operating Funds:

Current fund – unrestricted is the main operating fund of a college and is used or the day-to-day operations
1.
of the college/university without restriction.
2. Current fund – restricted may also be used for day-to-day operations, but it must be used within the
framework of the specified purposes imposed by a grantor or donor.
Loan Funds - is used for making loans to students, faculty, and staff. Generally, this fund consists of grants from donors
and income from endowment funds. These funds are loaned to recipients with the expectation that the loans will be repaid in the
future.
1. Unrestricted Loan Funds – when the board of trustees sets the policies of the loan funds.
2. Restricted Loan Funds - if grants or donations have restrictions imposed by the donors or grantors.
Endowment Funds and Similar Funds
1. Pure or Regular Endowment Fund are funds whose:
➢ Principal (corpus) has been specified by the donor as nonexpendable or to be held in perpetuity or
kept intact.
➢ Income (dividend or interest) normally permits to be expended for current operations.
2. Term Endowment Fund – it is similar to an endowment fund except that the:
➢ Principal (corpus) is expendable after a specified time period or specified event (after which the
principal becomes available),.
➢ Income (dividend or interest) normally permits to be expended for current operations.

Page 3 of 18 0915-2303213/0908-6567516  [email protected]

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY AFAR-20
Weeks 16-17: NOT-FOR-PROFIT ORGANIZATIONS

3. Quasi-endowment Fund – differs from endowment fund is that the restriction are imposed by the
institution’s board of trustees and not an outside grantor or donor .
Thus, quasi-endowment funds are unrestricted because any restrictions are imposed by the board of trustees:
➢ Principal (corpus) is expendable
➢ Income (dividend or interest) is expendable for current operations.
Annuity and Life Income Funds
1. Annuity Funds – to account for resources acquired under the condition that the college or university make
stipulated periodic payments to individuals as provided by the agreement with the donor.
2. Life Income Fund – to account for funds contributed to the college or university under the requirement that the
income (interest or dividend) be paid (usually until death) to a designated beneficiary.

Plant Funds
1. Unexpended Plant Fund contains assets set aside for the future acquisition of a college’s /universities plant
assets.
2. Fund for Renewals and Replacement contains assets set aside for the renewals and replacements of a college’s
/universities existing plant assets.
3. Fund for Retirement of Indebtedness contains assets set aside for the retirement of college’s/universities long-
term indebtedness.
4. Investment in Plant Fund - accounts for the funds already spent and thus represents the investment in plant
assets except for investments in plant assets held in endowment and annuity and life income funds. This fund
contain liabilities related to the plant assets carried in this fund, namely, accounts payable, notes payable, and
mortgages payable.

Illustrative Example:
Transactions Journal Entries
1. Received cash arising from:
Tuition fee, P100,000 Cash………………………………………………….200
Contribution- Revenue – TF – Unrestricted………….. 100
Unrestricted, P30,000 Contribution – Unrestricted…………….. 30
Temporary restricted – time, P20,000 Contribution – TR – time………………… 20
Temporary restricted – purpose, P40,000 Contribution – TR – purpose…………… 40
Permanently restricted, P10,000 Contribution – PR…………………………… 10
2. Payment of expenses of P35,000, of which Expenses – Unrestricted……………………… 35
P7,000 is from restricted (purpose). Cash…………………………………………….. 35

Reclassification – Out – TR – purpose…… 7

Reclassification In – Unrestricted……. 7
3. Purchase equipment amounting to P25,000 Equipment………………………………………….25
and is financed with donor restricted cash Cash……………………………………………. 25

Reclassification – Out – TR – purpose……25

Reclassification In – Unrestricted……. 25
Closing Entries:
a. Closing entries are prepared for Unrestricted Revenue – TF – Unrestricted…………..
Net Assets Contribution – Unrestricted……………..
Reclassification In - Unrestricted………
Expenses.......................……………
Unrestricted Net Assets………………
b. Closing entries are prepared for Temporarily Contribution – TR – time…………………
Restricted Net Assets: Contribution – TR – purpose……………
Reclassification–Out –TR–purpose
Temporary Restricted Net Assets.
c. Closing entries are prepared for Permanently Contribution – PR.……………………………
Restricted Net Assets: Permanently Restricted Net Assets
Statement of Activities
Unrestricted Temporary Permanently Total
Revenue – Tuition Fee…………………………………
Contribution………………………………………………. ___________ __________ __________ ________
Total………………………………………………………….
Net Assets Released from Restriction –
Satisfaction of Purpose…………………………… ___________ ___________ __________ ________
Total…………………………………………………………
Less: Expenses………………………………………….. ___________ ___________ __________ ________
Increase in Net Assets…………………………………
Net Assets, beginning…………………………………. ___________ ___________ __________ ________
Net Assets, ending………………………………………
========= ========= ======== ======

Page 4 of 18 0915-2303213/0908-6567516  [email protected]

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY AFAR-20
Weeks 16-17: NOT-FOR-PROFIT ORGANIZATIONS

Balance Sheet
Assets Liabilities and Net Assets
Cash……………………………………………… P Liabilities…………………………..P
Equipment…………………………………….. Net Assets:
Unrestricted………..P
Temporary Restr…
__________ Permanently Restr._______________
Total Assets……………………………………. P Total Liabilities and NA P
======== =======

II- Multiple Choice: Private Universities

1. Which of the following items best describes the basis of accounting used in accounting for not-for-profit universities?
a. Fund accounting c. Modified accrual basis
b. Accrual basis d. Cash basis
2. Which of the following is most likely to be classified as auxiliary enterprises revenues?
a. Tuition c. Dormitory fees
b. State research grant d. Endowment income
3. A term endowment is one whose:
a. Revenue is expendable and whose principal will become expendable
b. Revenue is expendable but whose principal is permanently nonexpendable
c. Revenue and principal are both expendable
d. Total amount becomes expendable at the end of a scholastic term
4. Fund established at a public college by donors who have stipulated that the principal is nonexpendable, but that the income
generated may be expended by current operating funds, would be accounted for in the:
a. Quasi-endowment fund c. Term endowment fund
b. Endowment fund d. Agency fund
5. Funds that the governing board of a public university, rather than a donor or outside agency, has determined are to be
retained and invested for other than loan or plant purposes would be accounted for in the:
a. Quasi-endowment fund c. Agency fund
b. Endowment fund d. Current-Fund Restricted
6. In which fund should a public account for resources contributed to the institution with the stipulation that periodic payments
be made to a designated beneficiary for a certain time period?
a. Annuity fund c. Restricted current fund
b. Endowment fund d. Agency fund
7. In which subgroup should the long-term liabilities related to a university’s physical plant assets be accounted?
a. Unexpended plant fund c. Plant fund for retirement of indebtedness
b. Plant fund for Renewals and d. Investment in Plant Fund
Replacement
8. A university’s mortgage payable account would be most likely to appear in the:
a. Unrestricted current fund c. Retirement of indebtedness plant fund
b. Annuity and Life Income fund d. Investment in plant fund
9. A contribution is given without donor restrictions. Under which fund group would this be recorded?
a. Current unrestricted funds c. Loan fund
b. Current restricted funds d. Endowment fund
10. An alumnus donates securities to University of Santo Tomas and stipulates that the principal be held in perpetuity and
revenues be used for faculty travel. Dividends received from the securities should be recognized as revenues in:
a. Endowment funds c. Restricted current funds
b. Quasi-endowment funds d. Unrestricted current funds
11. A private college’s plant group includes which of the following subgroups?
(1) Renewals and replacement funds
(2) Retirement of indebtedness funds
(3) Restricted current funds
a. 1 and 2 c. 2 and 3
b. 1 and 3 d. None of the above
12. Funds received by Divine Word College from donors who have stipulated that the principal is nonexpendable but that the
income generated may be expended for current operating needs would be accounted for as:
a. Contributions – Permanently Restricted
b. Contributions – Temporarily Restricted
c. Contributions – Unrestricted
d. Fund Balance Increases
13. Which of the following is not an example of general and educational expenses recorded by a college or university?
a. purchase of sweatshirts for sale in the college bookstore
b. expenses paid for instructors in the continuing education, non-degree program
c. consultant fees paid for a report on increasing the enrollment
d. salary of the football coach

Page 5 of 18 0915-2303213/0908-6567516  [email protected]

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY AFAR-20
Weeks 16-17: NOT-FOR-PROFIT ORGANIZATIONS

14. Where should an alumnus contribution of P10,000 to pay for scholarships for international study-abroad be accounted for?
a. scholarship fund
b. current-unrestricted fund
c. current-restricted fund
d. loan fund
15. Which of the following is NOT an example of Educational and General Revenue in a college or university?
a. student athletic fees
b. room and board fees received by the dormitory
c. governmental grants
d. endowment income
16. As expenses are made in compliance with donor restrictions on previously made contributions, what type of journal entry
must be made to record the transaction from the aspect of the current, unrestricted fund?
a. Reclassification Out-Temporarily Restricted Satisfaction of donor restriction xxx
Reclassification In-Unrestricted –Satisfaction of donor restriction xxx
b. Cash xxx
Revenue-Temporarily Restricted Contributions xxx
c. Cash xxx
Revenue-Unrestricted xxx
d. Interfund Transfer out-Temp Restricted xxx
Interfund Transfer In-Unrestricted xxx
17. All Alumni donates P5,000,000 to University of Santo Tomas for a new Women's Studies program. Al wants the principal to
remain intact but the investment earnings can be expended to support the Women's Studies Program. This donation would
be accounted for in the
a. Quasi-Endowment Fund. c. Term Endowment
b. Endowment Fund. d. Agency fund
18. The loan fund would account for loans
a. to hospital patients. c. to University students
b. to purchase assets. d. due to another fund
19. Government grants, like Lucio Gokongwei Ayala Grants, which are essentially pass through financial aid to students are
accounted for as
a. temporary restricted funds
b. unrestricted funds
c. loan funds
d. agency transactions
20. The quasi-endowment fund of a University would account for funds set aside by
a. the governing board of the University for a future purpose.
b. a donor who is uncertain how they want the funds spent.
c. a legal restriction on an endowment which may change.
d. a trustee who makes the donation contingent upon a future event.
21. ReSA College budgets funds for the maintenance and repair of its buildings. Where these funds would be accounted for?
a. Unexpended Plant Fund
b. Renewal and Replacement
c. Retirement of Indebtedness
d. Investment in Plant
22. The ReSA University issues long-term debt to build a bridge over the gap between its two main campuses. The debt would
be accounted for in the
a. Unexpended Plant Fund.
b. Plant Fund for Renewals and Replacement.
c. Plant Fund for Retirement of Indebtedness.
d. Investment in Plant.
23. A pledge is unconditional if it:
a. depends only on the passage of time.
b. depends on the demand by the university to be paid.
c. can be spent on any purpose.
d. a and b are correct.
24. A contribution is a(n)
a. conditional transfer of cash.
b. unconditional transfer of cash.
c. donation of services which would not be purchased otherwise.
d. donation of unskilled services which you might purchase.
25. A life income fund is used when:
a. resources are accepted with a stipulation that periodic payments will be made to the donor for a
specified number of years
b. endowments are made to the college or university
c. resources are accepted with a stipulation that periodic payments will be made to the donor for the
lifetime of the donor
d. All income earned on donated assets is to be paid to the donor over their lifetime.

Page 6 of 18 0915-2303213/0908-6567516  [email protected]

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY AFAR-20
Weeks 16-17: NOT-FOR-PROFIT ORGANIZATIONS

26. The following funds were among those held by Central Luzon State University at December 31, 20x8:
Principal specified by the donor as nonexpendable……………………………. P 500,000
Principal expendable after the year 20x9………………………………………….. 300,000
Principal designated from unrestricted net assets………………………………. 100,000
What amount should CLSU classify as permanently restricted endowments?
a. P 100,000 c. P 500,000
b. 300,000 d. 900,000
27. Laguna College, a private not-for-profit college, received the following contributions during 20x8:
(1) P5,000,000 from alumni for construction of a new wing on the science building to be constructed in 20x9.
(2) P1,000,000 from a donor who stipulated that the contribution be invested indefinitely and that the earnings be used
for scholarships. As of December 31, 20x8, earnings from investments amounted to P50,000.
For the year ended December 31, 20x8, what amount of these contributions should be reported as temporarily restricted
revenues on the statement of activities?
a. P 50,000 c. P5,000,000
b. 5,050,000 d. 6,050,000
28. San Pedro College, a private not-for-profit college, received P25,000 from Ms. Smith on April 30, 20x8. Ms. Smith stipulated
that her contribution be used to support faculty research during the fiscal year beginning on July 1, 20x8. On July 15, 20x8,
administrators of Kerry awarded research grants totaling P25,000 to several faculty in accordance with the wishes of Ms.
Smith. For the year ended June 30, 20x8, San Pedro College should report the P25,000 contribution as
a. Temporarily restricted revenues on the statement of activities.
b. Unrestricted revenue on the statement of activities.
c. Temporarily restricted deferred revenue on the statement of activities.
d. An increase in fund balance on the statement of financial position.
29. The following receipts are among those recorded by Far Eastern University during 20x8:
Unrestricted gifts……………………………………………………………………………….. P 500,000
Restricted gifts (expended for current operating expenses)……………………. 200,000
Restricted gifts (not yet expended)……………………………………………………… 100,000
The amount that should be included in current fund revenues is:
a. P800,000 c. P600,000
b. 700,000 d. 500,000
30. Using the same information in No. 29, the amount that should be included in revenues is:
a. P800,000 b. 700,000 c. P600,000 d. 500,000
31. The following information was available from University of San Jose Recoletos accounting records for its current funds for
the year ended March 31, 20x8:
Restricted gifts received
Expended………………………………………………………………………………P 100,000
Not expended……………………………………………………………………….. 300,000
Unrestricted gifts received
Expended………………………………………………………………………………P 600,000
Not expended………………………………………………………………………… 75,000
What amount should be included in current unrestricted funds revenues fort he year ended March 31, 20x8?
a. P600,000 b. P700,000 c. P 775,000 d. P1,000,000
32. In the loan fund of a private or public college, each of the following types of loans would be found, except:
a. Faculty b. Computer c. Staff b. Computer
33. At the end of the year, University of the East’s balance sheet comprised P15,000,000 of assets and P9,000,000 of liabilities
(including deferred revenues of P300,000). What is the balance of UE’s net assets?
a. P5,700,000 b. P6,000,000 c. P 6,300,000 d. 15,000,000
34. On July 31, 20x5, Southland College showed the following amounts to be used for
Renewal and replacement of college properties……………………………………………….P 200,000
Retirement of indebtedness on college properties……………………………………………. 300,000
Purchase of physical properties for college purposes,
but unexpended at 7/31/20x5………………………………………………………………. 400,000
What total amount should be included in Southland's plant funds at July 31, 20x5?
a. P900,000 c. P400,000
b. P600,000 d. P200,000

Note: Tuition and fee remissions/waivers and uncollectible accounts.

• Tuition and fees are important revenue sources for colleges and universities.
➢ The full amount of the standard rate for tuition and fees is recognized as REVENUE.
➢ The accounting for university-sponsored scholarships, fellowships, tuition remissions, or waivers depends on
whether the recipient receives a university-sponsored scholarship that does not require any
employment-type of work to be given to the university , the university accounts for this as a
DEDUCTION from Revenue (Tuition Fee).
➢ On the other hand, if the student must provide employment-type work to the university, the
university accounts for the scholarship as an EXPENSE . Example is the tuition remission (reduction)
often given to graduate students who accept teaching assistantships. The university records revenue for the

Page 7 of 18 0915-2303213/0908-6567516  [email protected]

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY AFAR-20
Weeks 16-17: NOT-FOR-PROFIT ORGANIZATIONS

graduate student’s tuition at the standard rate and then records the tuition remission as an expense of the
year in which the graduate student is a teaching assistant.
• Tuition and fee reimbursements for withdrawals from coursework. Students withdrawing from classes
after the beginning of the class term may be able to collect a reimbursement or return of some of the tuition and
fees paid at the beginning of the term. Colleges and universities account for these reimbursement or return of
some of the tuition and fees paid at the beginning of the term. Colleges and universities account for these
reimbursements of tuition and fees as a reduction of REVENUE . When the check to the student is
approved, the university debits revenue from tuition and fee reimbursements and credits cash or
accounts payable.
35. Silliman University offers graduate assistantships to qualified students each year. In exchange for the waiver of tuition,
graduate assistants are required to assist faculty members with research and other activities. Assume a graduate assistant
received a P4,000 tuition waiver for the current academic year. Based on these facts, the university should record
a. tuition revenues of P4,000 and expenditures of P4,000.
b. tuition revenues of P0 and expenditures of P0.
c. tuition revenues of P4,000 and expenditures of P0.
d. tuition revenues of P4,000 and a reduction of tuition revenues of P4,000.

35. For the 20x5 First Semester, University of San Carlos (USC) assessed its students P4,000,000 (net of refunds), covering and
tuition and fees for educational and general purposes. However, only P3,700,000 was expected to be realized because tuition
remissions of P80,000 were allowed to faculty member’s children attending USC, and scholarships with services rendered to
the university totaling P220,000 were granted to students. What amount should USC include in gross educational and general
current fund/gross revenues from student tuition and fees?
a. P4,000,000 b. 3,920,000 c. P3,780,000 d. 3,700,000
38. University of Cebu, a private not-for-profit university, had the following cash inflows during the year ended June 30, 20x5:
(1) P500,000 from students for tuition.
(2) P300,000 from a donor who stipulated that the money be invested indefinitely.
(3) P100,000 from a donor who stipulated that the money be spent in accordance with the wishes of University of Cebu's
governing board.
On University of Cebu's statement of cash flows for the year ended June 30, 20x5, what amount of these cash flows should
be reported as operating activities?
a. P900,000 b. 400,000 c. P800,000 d. 600,000
Hospitals / Health Care Providers
The funds used by hospitals and other health care providers for accounting purposes are slightly different from those used by
colleges and universities.
General Fund is an unrestricted fund used to account for the day-to-day operations of a health care provider, and it may
be used by the governing board for any designated purpose other than restricted resources imposed by grantors and donors . The
general fund used by a hospital or other health care provider is similar to the current fund – unrestricted used by a college
or a university.
1. Assets whose use is limited include assets set aside by the governing board for identified purpose.
2. Agency Funds are included in General Funds as both an asset and a liability. Although not prescribed as a fund
for hospital accounting, an agency fund may be used by hospitals to account for fees collected as an agent for
physicians who have private-practice patients coming to hospital offices provided to the staff physicians. The hospital
would remit the fees collected to the physicians less charges for rental and administrative costs.
3. Property and equipment used for general operations, and the related liabilities, are reported in General
Funds.
Property and equipment whose use is restricted (e.g., real estate investments of Endowment Funds) are reported
in the appropriate donor-restricted fund.

Donor-Restricted Funds
1. Temporary restricted fund may be a specific purpose fund, a term-endowment fund, or a plant replacement and
expansion fund. An annuity and life income fund similar to that of colleges and universities may also be included as
a temporarily restricted fund.
a. Specific Purpose Fund is a restricted fund used by health care providers to account for principal and income in
accordance with donor’s specified restrictions. A specific purpose fund is very similar to the current fund – restricted
used by colleges and universities.
b. Endowment Fund is used by a hospital to account for a trust where the principal must be kept intact and the
income be expended for either current operations or a specific purpose in accordance with the grantor’s wishes . An
endowment fund for a hospital is very similar to endowment fund for colleges and universities.
The endowment may be in perpetuity, or it may be a fixed term or until a specific event occurs.
An endowment fund that is for fixed term is known as a term endowment fund. At the end of its life, the
principal in the term endowment fund is transferred to another restricted fund – a specific purpose fund, a plant
replacement fund and expansion fund, or the general fund – in accordance with the donor’s wishes.
c. Plant Replacement and Expansion Fund is a restricted fund used by hospitals and other health care providers
to account for a donor’s contributions that must be used to acquire property, plant and equipment (PPE).
2. Permanently Restricted Fund is also an endowment fund, but differs from a term-endowment fund is that
the principal must be maintained intact in perpetuity and only the income may be used in accordance with the
donor’s wishes.

Page 8 of 18 0915-2303213/0908-6567516  [email protected]

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY AFAR-20
Weeks 16-17: NOT-FOR-PROFIT ORGANIZATIONS

Revenues and Gains

Revenue is reported in the period in which services are rendered. Operating revenues consists of patient service revenues,
premium fees revenues, and other operating revenues.
1. Patient Service Revenues include room and board, nursing services, and other professional services. Patient service
revenues typically are recorded at established (gross) rates as the services are provided but are reported net of amounts
that are considered deductions from revenues. The objective is to report the amount that the hospital is entitled to collect
as patient service revenues
Charity care services provided free of charge to patients who qualify under a hospital’s charity care policy
– are excluded from both gross and net patient service revenues.
Allowance accounts are used to reduce receivables for estimated deductions from revenues, as well as estimated doubtful
accounts.
Deductions from revenues include:
1. Courtesy allowances/ staff discounts – discounts to doctors and employees
2. Contractual adjustments – discounts arranged with third-party payors (PhilHealth for example) that
frequently have agreements to reimburse at less-than-established rates.
2. Premium Fees also known as subscriber fee or capitation fees, are revenues from agreements which a hospital
provides any necessary patient services (perhaps from a contractually established list of services) for a specific fee. Thee
fee is usually a specific fee per member per month. The fees are earned whether the standard charges for services actually
rendered are more or less than the amount of the fee – i.e. without regard to services actually provided in the period.
Therefore, they are reported separately from patient service revenues. This is a growing portion of hospital
revenues in many hospitals.
3. Other Revenue and Gains
a Other Operating Revenues include revenue from services other than health care provided to patients as well as
from sales and services to persons other than patients. This classification might include tuition from schools operated
by the hospital, rentals of hospital space, charges for preparing and reproducing medical records, room charges for
telephone calls and television, proceeds from cafeterias, gift shops, snack bars, donated medicine, linen and office
supplies, etc.
b. Non-operating Revenues records revenue not related directly to an entity’s principal operations. These
items are primarily financial in nature and include unrestricted and donor-restricted pledges, gifts or grants,
unrestricted income from endowment funds, maturing term endowment funds, income and gain from investments,
gains on sale of hospital property. Investments are reported at fair value with both realized and unrealized gains
included as part of non-operating revenues.

Classification of Operating Expenses

Operating expenses of hospitals are reported on an accrual basis and normally include functional categories for nursing
services (medical and surgical intensive care, nurseries, operating rooms), other professional services (laboratory, radiology,
anesthesiology, pharmacy), general services (housekeeping, maintenance, laundry), fiscal services (accounting, cashier, credit
and collection, data processing), administrative services (personnel, purchasing, insurance, governing board), interest, and
depreciation provisions.
Provision for bad debts is an expense . The difference between charity care and bad debts expense is that charity care
results from the hospital’s policy of providing health care to individuals who meet certain financial criteria, whereas bad debts
results from extending credit. Health care services provided as charity care were never intended to provide cash flows.
I – Hospital Revenues
Identify whether the following items would be PS for Patient Service Revenue, OO for Other Operating Revenue, N for
Nonoperating Revenue and N/A if not a revenue item:
1. Tuition for entry to the nursing school……………………………………__________
2. An unrestricted gift of cash…………………………………………………….__________
3. General nursing fees charged to patients…………………………………__________
4. Charges for physicians’ care……………………………………………………__________
5. A restricted gift used for research on genes……………………………..__________
6. Dividends from the hospital’s investments………………………………..__________
7. Revenue from gift shop sales………………………………………………….__________
8. Patient room and board charges……………………………………………..__________
9. Proceeds from sales of cafeteria meals…………………………………….__________
10. Recovery room fees………………………………………………………………...__________
11. Contributions for plant replacement and expansion……………………__________
12. Charges for emergency room service…………………………………… ___________
13. Rent received from Radiology Associates for hospital space………___________
14. Ambulance service………………………………………………………………… ___________

II - Multiple Choice – Health Care Providers or Hospital

1. Which of the following terms best describes the basis of accounting used by not-for-profit health care organizations?
a. Accrual basis c. Cash basis
b. Modified accrual basis d. Modified cash basis
2. An unrestricted gift to a not-for-profit hospital is recorded as:
a. Patient Service Revenue
b. Other Operating Revenue – Unrestricted Contribution
c. Nonoperating Revenue – Unrestricted Contribution
d. An increase in the fund balance of the General Fund

Page 9 of 18 0915-2303213/0908-6567516  [email protected]

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY AFAR-20
Weeks 16-17: NOT-FOR-PROFIT ORGANIZATIONS

3. Revenue from the snack bar and parking lot of a not-for-profit hospital is recorded as:
a. Patient Service Revenue – Unrestricted
b. Resident Service Revenue – Unrestricted
c. Other Operating Revenue – Unrestricted
d. Nonoperating Revenue - Unrestricted
4. Inventory donated for use in hospital’s principal operations should be reported as:
a. Other Operating Revenues c. Additions to unrestricted net assets
b. Nonoperating Revenues d. Additions to restricted net assets
5. A gift to a not-for-profit hospital restricted by the donor for use in a current, specific operation should be recorded in the:
a. General Fund c. Endowment Fund
b. Specific-Purpose Fund d. Enterprise Fund
6. The property, plant and equipment of a health care entity should be accounted for as part of:
a. General Funds c. Specific Purpose Funds
b. Restricted Funds d. Plant Expansion and Replacement Funds
7. Which of the following would be included in the general funds of a not-for-profit health care entity?
a. Permanent Endowments
b. Term Endowments
c. Board designated funds originating from previously accumulated income
d. Plant expansion and replacement funds
8. UST Hospital’s accounting records disclosed the following information:
* Net resources invested in plant assets……………………………………….......P10,000,000
* Board designated funds (assets whose use is limited)………………………. 2,000,000
What amount should be included as part of general funds?
a. P12,000,000 c. P 2,000,000
b. 10,000,000 d. –0-
9. In 20x8, USC Hospital received P250,000 pure endowment fund grant. Also in 20x8, USC Hospital’s original governing board
designated, for special uses, P300,000 which had originated from unrestricted gifts. What amount of these resources should
be accounted for as part of general funds?
a. P -0- c. P 300,000
b. 250,000 d. 550,000
10. Alice makes a cash gift which has no strings attached to a not-for-profit hospital. It is recorded as:
a. Patient Service Revenue.
b. Other Operating Revenue--Unrestricted Contribution.
c. Nonoperating Revenue--Unrestricted Contribution.
d. an increase in the fund balance of the General Fund.
11. Atlee makes a cash gift to a not-for-profit hospital which is restricted by the donor to buy toys for the pediatric ward. It
should be recorded in the:
a. General Fund.
b. Specific-Purpose Fund.
c. Endowment Fund.
d. Enterprise Fund.
12. Under CPU Hospital’s established rate structure, the hospital would have earned patient service revenue of P9,000,000 for
the year ended December 31, 20x5. However, P6,750,000 was collected because of charity allowances of P1,500,000 and
discounts of P750,000 to third-party payors. For the year ended December 31, 20x5, what amount should CPU record as net
patient service revenue?
a. P6,750,000 c. P8,250,000
b. 7,500,000 d. 9,000,000
13. Under STU Hospital’s established rate structure, the hospital would have earned patient service revenue of P7,000,000 for
the year ended December 31, 20x4. However, STUH did not expect to collect this amount because of charity allowances of
P1,000,000 and discounts of P500,000 to third party payers. In May 20x4, STUH purchased bandages from Ace Supply Co.
at a cost of P5,000. However, Ace notified STUH that the invoice was being cancelled and that the bandages were being
donated to STUH. For the year ended December 31, 20x4, how much should STUH record as patient service revenue?
a. P7,000,000 c. P6,000,000
b. P6,500,000 d. P5,500,000
15. A not-for-profit hospital provides its patients with services that would normally be charged at P1 million. However, it estimates
a P200,000 reduction because of contractual adjustments. It expects another P100,000 reduction because of bad debts.
Finally, the hospital does not expect to collect P400,000 because this amount is deemed to be charity care. Which of the
following is correct?
a. Patient service revenues P1 million; net patient service revenues = P300,000.
b. Patient service revenues = P1 million; net patient service revenues = P400,000.
c. Patient service revenues = P600,000; net patient service revenues = P300,000.
d. Patient service revenues P600,000, net patient service revenue P400,000.
16. A hospital has the following account balances:
Revenue from newsstand ……………………….. P50,000
Amounts charged to patients ………………….. 800,000

Page 10 of 18 0915-2303213/0908-6567516  [email protected]

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY AFAR-20
Weeks 16-17: NOT-FOR-PROFIT ORGANIZATIONS

Interest income …………………………………… 30,000

Salary expense—nurses …………………………. 100,000
Contractual adjustments………………………… 110,000
Undesignated gifts…………………………………. 80,000
Bad debts……………………………………………. 10,000
What is the hospital’s net patient service revenue?
a. P880,000 c. P690,000
b. P800,000 d. P680,000

Use the following information for questions 17 to 19:

Under Dodge Hospital’s established rate structure, the hospital would have earned patient service revenue
P5,000,000 for the year ended December 31,20x3. However, Dodge did not expect to collect this amount because
of contractual adjustments of P500,000 to third party payors. In May 20x3, Dodge purchased bandages from Hunt
Supply Company at a cost of P1,000. However, Hunt notified Dodge that the invoice was being canceled and that
the bandages were being donated. On December 31,20x3, Dodge had board-designated assets consisting of P40,000
in cash and investments of P700,000.
17. For the year ended December 31, 20x3, how much should Dodge report as net patient service revenue?
a. P4,500,000 c. P5,500,000
b. P5,000,000 d. P5,740,000
18. For the year ended December 31,20x3, Dodge should record the donation of bandages as:
a. A P1,000 reduction in operating expenses.
b. A decrease in net assets released from restrictions.
c. An increase in unrestricted revenue, gains, and other support.
d. A memorandum entry only.
19. How much of dodge’s board-designated assets should be included in unrestricted net assets?
a. P-0- c. P700,000
b. P40,000 d. P740,000
20. Under Ateneo Hospital’s established rate structure, the hospital would have earned patient service revenue of P7,000,000 for
the year ended December 31, 20x4. However, Ateneo did not expect to collect this amount because of charity allowances of
P1,000,000 and discounts of P500,000 to third party payers. In May 20x4, Ateneo purchased bandages from Ace Supply Co.
at a cost of P5,000. However, Ace notified Ateneo that the invoice was being cancelled and that the bandages were being
donated to Ateneo.
For the year ended December 31, 20x4, Ateneo should record the donation of bandages as:
a. A P5,000 reduction in operating expenses.
b. Non-operating revenue of P5,000.
c. Other operating revenue of P5,000.
d. A memorandum entry only.
21. Ateneo Hospital’s patient service revenues for services provided in 20x5, at established rates, amounted to P8,000,000 on
the accrual basis. For internal reporting, Ateneo uses the discharge method. Under this method, patient service revenues are
recognize only when patients are discharged, with no recognition given to revenues accruing for services to patients not yet
discharged. Patient service revenues at established rates using the discharge method amounted to P7,000,000 for 20x5.
According to GAAP, Ateneo should report patient service revenues for 20x5 of:
a. . Either P8,000,000 or P7,000,000 at the option of the hospital
b. P8,000,000
c. 7,500,000
d. 7,000,000
22. In 20x5, UNC Hospital received an unrestricted bequest of common stock with a fair market value of P50,000 on the date of
receipt of the stock. The testator had paid P20,000 of this stock in 20x5. UNC should generally record this bequest as:
a. Nonoperating revenue of P50,000 c. Nonoperating revenue of P20,000
b. Nonoperating revenue of P30,000 d. A memorandum entry only

Items 23 through 26 are based on the following information pertaining to GNC Hospital for the year ended May
31, 20x5:
In March 20x5, a P300,000 unrestricted bequest an a P500,000 pure endowment grant were received. In April 20x5, a bank
notified GNC that the bank received P10,000 to be held in permanent trust by the bank. GNC is to receive the income from this
donation.

23. GNC should generally record the P300,000 unrestricted bequest as:
a. A nonoperating gain/revenue c. A direct credit to the fund balance
b. Other revenue d. A credit to operating expenses
24. The P500,000 pure endowment grant:
a. May be expended by the governing board only to the extent of the principal since the income from this fund must be
accumulated.
b. Should generally be reported as nonoperating gain/revenue when the full amount of principal is expended.
c. Should be recorded as a memorandum entry only
d. Should be accounted for in the donor-restricted funds upon receipt

Page 11 of 18 0915-2303213/0908-6567516  [email protected]

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY AFAR-20
Weeks 16-17: NOT-FOR-PROFIT ORGANIZATIONS

25. The P10,000 donation being held by the bank in permanent trust should be:
a. Recorded in GNC’s restricted endowment fund.
b. Recorded by GNC’s as a nonoperating gain/revenue.
c. Recorded by GNC as other revenue.
d. Disclosed in notes to GNC’s financial statements.
26. A statement of financial position (balance sheet), which reports unrestricted, temporarily restricted, and permanently restricted
net assets, is required for which one of the following organizations?
I. A public university.
II. A private, not-for-profit hospital.
a. Both I and II. c. Neither I nor II.
b. I only. d. II only
27. San Fernando Hospital, a private not-for-profit hospital, had the following cash receipts for the year ended December 31,
20x5:
Patient service revenue………………………………………………………………………………….P 300,000
Gift shop revenue………………………………………………………………………………………….. 25,000
Interest revenue restricted by donor stipulation
for acquisition of equipment………………………………………………………………………. 50,000
As a result of these cash receipts, hospital's statement of cash flows for the year ended December 31, 20x5, would report an
increase in operating activities of:
a. P325,000 c. P350,000
b. 375,000 d. 300,000
28. Hospital premium fees are
a. charity care services.
b. only earned to the extent of the services provided.
c. refundable to the subscriber if services are unused.
d. revenues earned even if the standard charge is above or below the fee.
29. Hospital courtesy allowances are
a. charity care services
b. revenue deductions.
c. Expenses.
d. revenues earned even if the standard charge is above or below the allowance.

Voluntary Health and Welfare Organization

Organizations that fall into this grouping are those deriving their principal funding from the general public in the form of voluntary
contributions, from governments, and from grants, which are then used to support health, welfare, and community service
projects.

The FUNDS used by the VHWO include:

1. Current Fund – Unrestricted. This fund is used for operations that require only the discretion of the organization’s board
of directors, and include assets designated by the board for specific purposes.

Revenues are recoded using the full accrual basis. A distinction should be made between Public Support and Revenues.
Public Support is the inflow of resources from voluntary donors who receive no direct, personal benefit from the
organization’s usual programs in exchange for their contributions. They include the following:
a. Contributions
b. Special Events Support
c. Legacies and Bequests
d. Proceeds from fundraisers
Revenues are inflows of resources resulting from a charge for service from financial activities or from other exchange
transactions.
a. Membership Dues
b. Program Service Fees
c. Sales of Publications and Supplies for proceeds from the sales of these items
d. Investment Income e.g., interest dividends, and other earnings.

Expenses are classified as program services and supporting services and are reported on a functional basis
under these classifications.
Program services relate to the expenses incurred in providing the organization’s social service activities.
Supporting services consist of administrative expenses and fund-raising costs.
In reporting expenses in the statement of activities, the functional classifications might appear as follows:
Expenses
Program Services
Research; Public Education; Professional Education; Community Services
Supporting Services
Management and general; Fund-raising
Expenses are recorded on a full accrual basis in a manner similar to that used by business organizations.
Expenses are recorded in each fund that incurs the expenses.

Page 12 of 18 0915-2303213/0908-6567516  [email protected]

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY AFAR-20
Weeks 16-17: NOT-FOR-PROFIT ORGANIZATIONS

2. Current Fund – Restricted. This fund is used for operations, but only in accordance with a donor or grantor’s
specifications.
Restricted pledges to be used to promote the adoption of handicapped children would be recorded in this classification.

3. Land, Building, and Equipment Fund. This fund is used to account for:
a. Land, buildings, and equipment acquired by the organization;
b. Liabilities arising from the acquisition or improvement of plant assets;
c. Current assets restricted by donors or grantors for future disposition.

4. Endowment Fund. This fund is used to accounts for permanently restricted endowment principal to be maintained intact
either in perpetuity or until a specific event occurs and temporary restricted term endowments.
5. Custodian Fund. A fund “established to account for assets received by an organization to be held or disbursed only on
instructions of the person or organization from whom they were received.” This fund is similar to agency fund of a college or
university. The assets do not belong to the organization.

Multiple Choice – Voluntary Health and Welfare Organization

1. Which basis of accounting should a voluntary health and welfare organization use?
a. Cash basis for all funds.
b. Modified accrual basis for all funds.
c. Accrual basis for all funds.
d. Accrual basis for some funds and modified accrual basis for other funds.
2. Voluntary health and welfare organizations include voluntary:
a. Hospitals
b. Health, welfare, and community service organizations
c. Social clubs
d. Fine arts association
3. Which of the following private, nonprofit entities is required to report expenses both by function and by natural
classification?
a. Hospitals.
b. Colleges and universities.
c. Voluntary health and welfare organizations.
d. Performing arts organizations.
4. A statement of functional expenses is required for which of the following private nonprofit organizations?
a. Colleges.
b. Hospitals.
c. Voluntary health and welfare organizations.
d. Performing arts organizations.
5. Fund-raising costs of voluntary health and welfare organizations are classified as:
a. Functional expenditures
b. Program services
c. Supporting services
d. Management and general expenses

6. In the statement of activities of a VHWO, depreciation expense should:

a. Be included as an element of expense.
b. Be included as an element of other changes in fund balance.
c. Be included as an element of support.
d. Not be included.

7. Contributions to the building fund should:

a. Be included as an element of support.
b. Be included as an element of revenue.
c. Be included as an element of other changes in fund balances.
d. Not be included.

8. Which of the following sources of assets for a VHWO would not be considered public support?
a. Sales of publications c. Special events support
b. Contributions d. Legacies and bequest

9. Contributions restricted by the donors for the purchase of fixed assets should be recorded in the:
a. Current Unrestricted Fund c. Land, Buildings, and Equipment Fund (Plant)
b. Current Restricted Fund d. Endowment Fund

10. Which of the following would appear in the Custodian (Agency) Funds of a VHWO:
Revenues Liabilities
a. Yes Yes
b. No Yes
c. Yes No
d. No No

Page 13 of 18 0915-2303213/0908-6567516  [email protected]

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY AFAR-20
Weeks 16-17: NOT-FOR-PROFIT ORGANIZATIONS

11. The following expenditures were among those incurred by a voluntary welfare society during 2005:
Printing of annual report ……………………………………………………… P 10,000
Unsolicited merchandise sent to encourage contributions………… 20,000
What amount should be classified as fund –raising costs in the society’s statement of activities?
a. P -0- c. P 20,000
b. 10,000 d. 30,000

12. Arbor Haven, a voluntary welfare organization funded by contributions for the general public, received unrestricted pledges
of P500,000 during 2005. It was estimated that 12% of these pledges would be uncollectible. By the end of 2005, P400,000
of the pledges had been collected, and it was expected that P40,000 more would be collected in 2006, with the balance of
P60,000 to be written of as uncollectible. Donors did not specify any periods during which the donations were to be used.
What amount should Arbor Haven include under public support in 2005 for contributions?
a. P500,000 c. P440,000
b. 452,000 d. 400,000

13. Lema Fund, a voluntary welfare organization funded by contributions from the general public, received unrestricted pledges
of P200,000 during 2005. It was estimated that 10% of these pledges would be uncolletible. By the end of 2005, P130,000
of the pledges had been collected. It was expected that P50,000 more would be collected in 2006 and that the balance of
P20,000 would be written off
14. as uncollectible. What amount should Lema include under public support in 2005 for net contributions?
a. P200, 000 c. P150,000
b. 180,000 d. 130,000
15. Apex Inc. donated a computer to Bird Shelter, a voluntary organization. The computer cost Apex P40,000. On that date, it
had a book value of P25, 000 and a market value of P20,000. Bird Shelter’s depreciation expense should be based on:
a. P 40,000 c. P 20,000
b. 25,000 d. 15,000
15. Good Hope, a voluntary health and welfare organization, received a cash donation of P500,000 from Mr. Charles Peobody on
November 15, 2005. Mr. Peobody requested that his donation be used to acquire equipment for the organization. Good Hope
used the donation to acquire equipment costing P500,000 in January of 2006. For the year ended December 31, 2005, Good
Hope should report the P500,000 contribution on its:
a. Statement of activities as unrestricted revenue.
b. Statement of financial position as temporarily restricted deferred revenue.
c. Statement of financial position as unrestricted deferred revenue.
d. Statement of activities as temporarily restricted revenue.
16. United Ways, a voluntary health and welfare organization, received a contribution of P10,000 from a donor in 2005. The donor
did not specify any use restrictions on the contribution; however, the donor specified that the donation should not be used
until 2006. The governing board of United Ways spent the contribution in 2006 for fund-raising expenses. For the year ended
December 31, 2005, United Ways should report the contribution on its
a. Statement of financial position as deferred revenue.
b. Statement of activities as unrestricted revenue..
c. Statement of financial position as increase in fund balance.
d. Statement of activities as temporarily restricted revenue.
17. Which of the following transactions of a voluntary health welfare organization would increase temporarily restricted net assets
on the statement of activities for the year ended June 30, 20x5?
I. Received a contribution of P10,000 from a donor on May 15, 20x5, who stipulated that the donation not be spent
until August of 20x5.
II. Spent P25,000 for fund-raising on June 20, 20x5. The amount expended came from a P25,000 contribution on March
12, 20x5. The donor stipulated that the contribution be used for fund-raising activities.
a. Both I and II c. I only
b. Neither I nor II d. II only
18. United Hope, a voluntary health and welfare organization, received the following contributions in 20x5:
I. P500 from donors who stipulated that the money not be spent until 20x6.
II. P1,000 from donors who stipulated that the contributions be used for the acquisition of equipment, none of which
was acquired in 20x5.
Which of the above events increased temporarily restricted net assets for the year ending December 31, 20x5?
a. I only c. II only
b. Both I and II d. Neither I nor II
19. On December 31, 20x5, Hope Haven, a voluntary health and welfare organization, received a pledge from a donor who
stipulated that P1,000 would be given to the organization each year for the next 5 years, starting on December 31, 20x6.
Present value factors at 6% for 5 periods are present below:
Present value of an ordinary annuity for 5 periods at 6%................................ 4.21236
Present value of an annuity due for 5 periods at 6%...................................... 4.46511

For the year ended December 31, 20x5, Hope haven should report, on its statement of activities,
a. Unrestricted revenues of P5,000.
b. Temporarily restricted revenues of P4,465.
c. Unrestricted revenues of P4,465.
d. Temporarily restricted revenues of P4,212.

Page 14 of 18 0915-2303213/0908-6567516  [email protected]

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY AFAR-20
Weeks 16-17: NOT-FOR-PROFIT ORGANIZATIONS

20. A donation was received by a voluntary health and welfare organization specifically to care for indigent patients. Which of
the following should be used to record the gift?
a. Unrestricted Net Assets
b. Public Support--Unrestricted Contribution
c. Public Support--Temporarily Restricted Contributions
d. Revenues—Unrestricted
21. The local chapter of a CPA association, a not-for-profit organization, separate their expenses between program functions and
support functions. Which of the following denote a proper classification of expenses?
Program Expense Support Expense
I. Continuing Education Programs on Conference Expenses on Selecting
Sales/Use Tax Requirements Accounting Software
II. Continuing Education Programs on Executive Director Salary
Sales/Use Tax Requirements
III. Fund Raising Expenses Continuing Education Programs Conference
Expenses on Sales/Use Tax
IV. Fund Raising Expenses Executive Director Salary
a. I c. III
b. II. d. IV
22. Depreciation Expense is recorded in which of the following funds for a voluntary health and welfare organization electing to
use fund accounting?
a. Current Unrestricted Fund
b. Plant Fund
c. Depreciation is recorded in both the Current Unrestricted and Plant funds.
d. Depreciation is not normally recorded by health and welfare organizations.
23. A donation was received by a voluntary health and welfare organization of materials to be used in providing services. How
would these donated materials be recorded?
a. As inventory
b. As restricted contributions
c. As assets held for resale
d. As contributed services
24. A voluntary welfare organization is permitted to use building facilities rent free. This should be recorded as:
a. a footnote in the financial statements disclosing the rent-free arrangement.
b. a contribution.
c. rent expense at the fair market value.
d. both b and c are correct.
25. A donation was received by a voluntary health and welfare organization specifically to care for indigent patients. Which of
the following should be used to record the gift?
a. Unrestricted Net Assets
b. Public Support--Unrestricted Contribution
c. Public Support--Temporarily Restricted Contributions
d. Revenues—Unrestricted
26. A CPA donates her services to prepare the annual financial report for a voluntary health and welfare organization. The
services should be recorded as:
a. revenues-unrestricted.
b. accounting expenses.
c. a footnote disclosure in the financial report.
d. both a and b are correct.
27. Donated services are recognized as a contribution if:
a. they create or enhance nonfinancial assets.
b. they require specialized skills and the individuals performing the donated service possess those
skills.
c. the organization would otherwise purchase the service.
d. All of the above are correct.
28. Contribution of a work of art to a museum for public exhibit would
a. be recognized as a contribution at fair market value.
b. be recognized as operating revenue based upon admission fees.
c. be recognized as an asset subject to depreciation.
d. not be recognized as a contribution.
Other Not-for-Profit Organizations
The term “other not-for-profit organizations” includes all non-business organizations such as the following:
Cemetery organizations Private and community foundations
Civic and fraternal organizations Professional associations
Fraternal Organizations Public broadcasting stations
Labor Unions Religious organizations
Libraries Research and scientific organizations
Museums Social and country clubs
Other cultural arts Trade associations
Performing arts Zoological societies
Political parties Botanical societies

Page 15 of 18 0915-2303213/0908-6567516  [email protected]

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY AFAR-20
Weeks 16-17: NOT-FOR-PROFIT ORGANIZATIONS

If a not-for-profit organization does not receive any donations that are subject to restrictions, then all of its
bookkeeping is recorded in an unrestricted fund.
When donations with restrictions are received, then a separate restricted fund is used to record the transactions
of the restricted assets. It should be remembered that governing board designated limitations are nevertheless
recorded in the unrestricted fund. All restrictions and limitations should be disclosed in the financ ial
statements.

MULTIPLE CHOICE – OTHER NOT-FOR-PROFIT ORGANIZATION

1. A nonprofit performing arts organization receives a donation that is restricted to its endowment and another donation that is
restricted to use in acquiring a performing arts center. How should these donations be reported in the year received, assuming
neither donation is expended in that year?
Donation for Endowment Donation for Performing Arts Center
a. Contributions-Temporarily Restricted Contributions-Temporarily Restricted
b. Deferred Capital additions Capital Additions
c. Contributions-Unrestricted Contributions -Unrestricted
d. Contributions-Permanently Restricted Contributions-Temporarily Restricted

2. The statement of financial position (balance sheet) for Founders Library should report separate peso amounts for the library's
net assets according to which of the following classifications?
a. Unrestricted and permanently restricted.
b. Temporarily restricted and permanently restricted.
c. Unrestricted and temporarily restricted.
d. Unrestricted, temporarily restricted, and permanently restricted.

3. Chicago Museum has both regular and term endowments. On the museum's statement of financial position (balance sheet),
how should the net assets of each type of endowment be reported?
Term endowments Regular endowments
a. Temporarily restricted Permanently restricted
b. Permanently restricted Permanently restricted
c. Unrestricted Temporarily restricted
d. Temporarily restricted Temporarily restricted
4. On the statement of activities for a not-for-profit performing arts center, expenses should be deducted from
I. Unrestricted revenues.
II. Temporarily restricted revenues.
III. Permanently restricted revenues.
a. I, II, and III. c. I only
b. Both I and II. d. II only
5. Gamma Pi, a fraternal organization, should prepare a statement of financial position and which of the following statements?
I. Statement of activities.
II. Statement of changes in fund balances.
III. Statement of cash flows.
a. I, II, and III. c. II and III.
b. III only. d. Both I and III.

6. For Guiding Light, a religious organization, net assets which can be expended in accordance with the wishes of the governing
board of the organization should be reported as
I. Unrestricted. II. Temporarily restricted. III. Permanently restricted.
a. I only c. I, II, and III
b. Both I and II d. I or II

7. Rosary Botanical Gardens established a P500,000 quasi-endowment on September 1, 2003. On the garden's statement of
financial position at December 31, 2003, the net assets in this quasi endowment should be included in which of the following
classifications?
a. Temporarily restricted net assets.
b. Unrestricted net assets.
c. Permanently restricted net assets.
d. Either temporarily or permanently restricted net assets, depending on the expected term of the quasi endowment.

8. Save the Planet, a research organization, received a P500,000 contribution from Ms. Susan Clark stipulated that her donation
be used to purchase new computer equipment for Save the Planet's research staff. The contribution was received in August
of 20x3, and the computers were acquired in January of 20x4. For the year ended December 31, 20x3, the P500,000
contribution should be reported by Save the Planet on its
a. Statement of activities as unrestricted revenue.
b. Statement of activities as deferred revenue.
c. Statement of activities as temporarily restricted revenue.
d. Statement of financial position as deferred revenue.

Page 16 of 18 0915-2303213/0908-6567516  [email protected]

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY AFAR-20
Weeks 16-17: NOT-FOR-PROFIT ORGANIZATIONS

9. Sea Lion Park, a zoological society, received contributions restricted for research totaling P50,000 in 20x5. Assume the P50,000
was not expensed in 20x5. These contributions were used to purchase P35,000 of research equipment in 20x5. As a result
of these transactions, for the year ended December 31, 20x5, Sea Lion Park will report, on its statement of activities, a
a. P15,000 increase in temporarily restricted net assets.
b. P50,000 increase in temporarily restricted net assets.
c. P35,000 increase in unrestricted net assets.
d. P15,000 increase in unrestricted net assets.

10. A storm broke glass windows in the building of Lea Meditators, a not-for-profit religious organization. A member of Lea's
congregation, a professional glazier, replaced the windows at no charge. In Leah's statement of activities, the breakage and
replacement of the windows should
a. Not to be reported.
b. Be reported by note disclosure only.
c. Be reported as an increase in both expenses and contributions.
d. Be reported as an increase in both net assets and contributions.
11. During the year ended December 31, 20x5, the Kimdrei Community Foundation received the following contributed services:
I. Anderson & Anderson, attorneys-at-law, contributed their services which involved advice related to the foundation's
regular endowments.
II. Senior citizens participated in a telethon to raise money for a new music building.
Which of these contributed services should be included in unrestricted revenues, gains, and other support on Kimdrei
Community Foundation's statement of activities for the year ended December 31, 20x5?
a. Both I and II. c. II only
b. Neither I nor II. d. I only
12. In a not-for-profit organization, depreciation on capital assets is recognized on all but which of the following?
a. contributed assets. c. equipment
b. building. d. work of art intended for display
13. On January 2, 20x5, a nonprofit botanical society received a gift of an exhaustible fixed asset with an estimated useful life of
10 years and no salvage value. The cost’s of this asset was P20,000 and its fair market value at the date of the gift was
P30,000. What amount of depreciation of this asset should the society recognize in its 20x5 financial statements?
a. P 3,000 c. P 2,000
b. 2,500 d. 0
14. Anton Environs, a community foundation, incurred P10,000 in management and general expenses during 20x5. In Anton
Environs’ statement of activities for the year ended December 31, 20x5, the P10,000 should be reported as:
a. A direct reduction of unrestricted net assts.
b. Part of supporting services expense.
c. Part of program services expense.
d. Contra-account to offset revenue and support.
15. When a nonprofit organization combines fund-raising efforts with educational efforts or program services, the total combined
costs incurred are:
a. Reported as program services expenses.
b. Allocate between fund-raising and program services expenses using an appropriate allocation basis.
c. Reported as fund-raising costs.
d. Reported as management and general expenses.

16. The Jackson Foundation, a not-for-profit organization, had the following cash contributions and expenditures in 20x5:
* Unrestricted cash contributions of P500,000.
* Cash contributions of P200,000 restricted by the donor to the acquisition of property
* Cash expenditures of P200,000 to acquire property with the donation in the above item.
Jackson's statement of cash flows should include which of the following amounts?
Operating activities Investing activities Financing activities
a. P700,000 P(200,000) P 0
b. P500,000 P 0 P 0
c. P500,000 P(200,000) P200,000
d. P 0 P 500,000 P200,000

17. During the year ended December 31, 20x5, a not-for-profit performing arts entity received the following donor-restricted
contribution and investment income.
I. Cash contribution of P100,000 to be permanently invested.
II. Cash dividends and interest of P6,000 to be used for the acquisition of theater equipment.

As a result of these cash receipts, the statement of cash flows for the year ended December 31, 20x5, would report an
increase of
a. P 106,000 from operating activities.
b. P 106,000 from financing activities.
c. P 6,000 from operating activities and an increase of P 100,000 from financing activities.
d. P 100,000 from operating activities and an increase of P 6,000 from financing activities.

Page 17 of 18 0915-2303213/0908-6567516  [email protected]

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY AFAR-20
Weeks 16-17: NOT-FOR-PROFIT ORGANIZATIONS

Summary of Funds Used by Universities/Colleges, Hospitals, and Other Not-for-Profit Organizations

Universities/ Other- Not-for-
Type of Fund Colleges Hospitals Profit Organizations
Day-to-day operations Current Fund - General Fund Current Fund –
Unrestricted Unrestricted
Restricted day-to-day operations Current Fund – Specific Purpose Current Fund –
Restricted Fund Restricted
Loans to employees and students Loan Funds
Fund where principal is kept Endowment Fund Endowment Fund Endowment Fund
intact and income is used for
current operations
Fund where principal is kept intact Term Endowment Term Endowment Term Endowment
for a period of time and then Fund Fund Fund
release for current operations
An Endowment Fund where Quasi-Endowment
restrictions are imposed by the Fund
organization’s board of trustees
A donor receives an annuity for Annuity Income
Life after which the principal Fund
is then release for operations
The income earned by the fund is Life Income Fund
paid to the donor for life; the
principal in then release for
operations.
Cash and/or investments held for Unexpended Plant Replacement Land, Building, and
future acquisitions of plant and Plant Fund Fund and Equipment Fund
equipment other than renewals Expansion
or replacements of existing Fund if from
equipment donations;
otherwise the
General Fund
Cash and/or investment held for Fund for Plant Land, Building, and
future acquisitions of renewals Renewals and Replacement & Equipment Fund
and replacement of Replacements Expansion
equipment Fund if from
donations;
otherwise the
General Fund
Cash and/or investments held to General Fund Land, Building, and
repay the debt incurred to Equipment Fund
acquire plant and equipment
Recording of land, buildings, and Investment in General Fund Land, Building, and
equipment Plant Fund Equipment Fund
Collections of monies which Agency Fund Agency Fund Custodian Fund
are remitted to other
organizations

Source/Adapted : Advanced Accounting, 3 rd Edition

by Engler, Bernstein, Lambert
********
**Don’t think that there’s so much darkness, that it’s no use to have a small light, because even one
candle can be seen a mile away when it’s dark.**
**When all else is lost, the future still remains.**
**The greatest mistake you can make is to continually fear making mistakes.**
**When all else is lost, the future still remains.**
**The greatest mistake you can make is to continually fear making mistakes.**
Great achievements are not done by strength but by perseverance.
The secret of life is not just to live, but to have something worthwhile to live for.
Truth is the heart of life in a community with others, and truth, is of course, dishonored by a lie. A lie
is an assertion, in a context in which genuine communication is reasonably expected, of something
which one considers to be false.
********
The most difficult secret of a man to keep is the opinion he has of himself.
Nothing great was ever achieved without determination.
Don’t be discouraged; everyone who got where he is, started where he was.
Impossibilities vanish to confront a mountain when Our Lord JESUS CHRIST is always with us.

Page 18 of 18 0915-2303213/0908-6567516  [email protected]