Here is another one: I thought only donor can restrict contribution but in this case there isn't anything mention about donor restriction. Got lost now with NFP.
On December 31, 20X1, Dahlia, a nongovernmental not-for-profit entity, purchased a vehicle with $15,000 unrestricted cash and received a donated second vehicle having a fair value of $12,000. Dahlia expects each vehicle to provide it with equal service value over each of the next five years and with no residual value. Dahlia has an accounting policy implying a time restriction on gifts of long-lived assets. In Dahlia's 20X2 statement of financial position, what amount of temporarily restricted net assets would relate to the donated vehicle?
A.$0
B.$5,400
C.$9,600
D.$12,000
Nongovernmental not-for-profit entities may adopt an accounting policy recognizing a time restriction on assets provided by donors for the entity's use. The residual value of the asset, after annual depreciation, would therefore be recognized as temporarily restricted assets. The annual depreciation is recognized as an expense, shown as a reduction of unrestricted assets. Annual depreciation is also shown as a reduction in the value of the asset. As the asset is reduced in value, the amount of associated temporarily restricted net assets is also reduced. This requires a reduction of temporarily restricted net assets shown as “net assets released from restrictions” on the statement of activities.
Therefore, one year's depreciation of the donated vehicle ($12,000 Ă· 5 years, or $2,400) would reduce its residual value to $9,600 ($12,000 – $2,400).
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