[liveliferich]

Hey guys! Getting ready for FAR next week. (Last part). The concept of variance power in not for profit is a confusing concept. What’s the difference between not having variance power and restricted revenue. Doesn’t all restricted contribution revenue not have variance power and has stipulations based on the donor? I included a question that I missed for reference. Thanks in advance!

The Jones family lost its home in a fire. On December 25, Year 1, a philanthropist sent money to the Amer Benevolent Society, a private not-for-profit organization, to purchase furniture for the Jones family. During January Year 2, Amer purchased this furniture for the Jones family. How should Amer report the receipt of the money in its Year 1 financial statements?

a.

As an unrestricted contribution.

b.

As a liability.

c.

As a temporarily restricted contribution.

d.

As a permanently restricted contribution.

Explanation

Choice “b” is correct. The Amer Benevolent Society received a donation from a philanthropist for the benefit of a specific beneficiary and the Amer Benevolent Society has no variance power (discretion) relative to the use of the contribution. Receipt of this cash is not a contribution received, it is a liability.

AUD- 64, 70, 85 8/25/2015
BEC-79 5/27/2015
REG- 71, 79- 2/3/2016
FAR-79 6/8/2016

Licensed Georgia CPA-June 2016

[Spartans92]

B is the answer because these are considered to be “refundable advance.” Or a liability, that is because you are serving as the agent or someone holding these money for a specific purpose. If you don't do whatever the purpose was you will most likely have to give the philanthropist the money back. They can't be considered as contribution because it isn't yours. Hence, the other 3 answer can be ruled out immediately.

BEC- PASS

[Biff-1955-Tannen]

“for the benefit of a specific beneficiary”
This is what separates it from a restricted contribution. While restricted contributions are restricted to a specific purpose, the NFP has some discretion (variance power) as to what family/group/etc the restricted contributions will go towards, this contribution is meant specifically for this beneficiary. So the NFP is really just an intermediary that now has a liability to make sure this specific beneficiary receives this contribution.

AUD 93 Jan 16
BEC 83 Feb 16
FAR 83 Apr 16
REG 84 May 16

99% Ninja MCQ only

[Excel14]

I guess you could also equate it to this analogy too….in the Special Revenue Fund, revenues are gathered for a specific purpose, but the revenues don't benefit individuals, specific contractual entities, like maybe a Fiduciary Trust Find would. Hope that doesn't confuse more than help.

BEC (2/28/16) ----- 78
FAR (09/10/16)-----
AUD
REG

CIA, CGAP, CFE

[Anonymous]

You know what's sad? It's not any better in the real world. I work at a non-profit, and whenever I try to explain to a new hire the difference between our agency and restricted accounts, I just watch their eyes glaze over. 😛 The best I know how to explain the agency (“no variance power”/liability) accounts is that they're like a bank account – when I deposit my money at the bank, the bank has the money, but it's not theirs and they can't do anything with it, except give it to me or someone I write a check to (designate to receive it). The bank is like a non-profit and my checking account is like an agency account. A restricted account, the non-profits gets to make some choices, like who actually gets the money, but if the bank started choosing who to give money to out of my bank account, I'd be mad! Maybe this illustration only works for me cause I used to work in a bank, but it helped me get through the exam and I usually tell it to my new hires to try to give them a starting point. Pretty much, though, agency vs. restricted is as confusing in the real world as it is in the exam, and that's just ridiculous and sad. 😐

[liveliferich]

@Spartans92 Thanks that helped clear it up. That was driving me crazy yesterday.

AUD- 64, 70, 85 8/25/2015
BEC-79 5/27/2015
REG- 71, 79- 2/3/2016
FAR-79 6/8/2016

Licensed Georgia CPA-June 2016

[liveliferich]

@Excel14 @Biff-1955-Tannen- Thanks for helping me clear that up.

AUD- 64, 70, 85 8/25/2015
BEC-79 5/27/2015
REG- 71, 79- 2/3/2016
FAR-79 6/8/2016

Licensed Georgia CPA-June 2016

[liveliferich]

@Lilla Thanks for helping me clear it up. Your explanation really helped. Glad to see that I am not the only one who struggles with that concept lol

AUD- 64, 70, 85 8/25/2015
BEC-79 5/27/2015
REG- 71, 79- 2/3/2016
FAR-79 6/8/2016

Licensed Georgia CPA-June 2016

[Author]

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