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 Topic: Loss on endowement--NFP question ( Topic Closed)
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lucyinthesky
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| Posted: 17 Apr 2009 at 18:19 | IP Logged
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During the year ended June 30, 20X0, the Aberdeen Care Clinic, a not for profit organization, received an endowment for $2,300,000. The endowment is to remain in tact with income and appreciation from the investment of the endowment to be used in support of a research program to assist the elderly. By June 30, 20X2, the endowment had accumulated $110,000 in gains. On July 1, 20X2, the company liquidated 65% of the cumulative appreciation of the endowment for use in the research program. During the year ended June 30, 20X3, the endowment earned $30,000, which it spent on the research program but, at year end, suffered market losses that reduced the total value of the investment below its initially recorded value to $2,250,000. The amounts reported as investment losses by net asset category for the year ended June 30, 20X3 would be:Temporarily Permanently
Unrestricted Restricted Restricted
a. $0 $0 ($50,000)
b.$0 ($30,000) ($20,000)
c.$0 ($30,000) ($20,000)
d.$50,000 $38,500 $0
Can anybody give me a best clear approach to solve this kind of "loss on endowement" questions? Thanks a lot!
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rchxenson
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| Posted: 21 Apr 2009 at 17:28 | IP Logged
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well you don't give an answer but I would have chosen D
The reason being is that any loss incurred by the endowment will be covered by assets from the 'unrestricted' catigory.
That being said, I have no idea where the 38,500 came.
You also have 2 'restricted' columns in there and which I believe the middle column is the 'temp' restriced column (atleast thats how I delt with it).
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divyagovil1
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| Posted: 21 Apr 2009 at 22:29 | IP Logged
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General rule :
The decline in the fair value of the assets first reduces the balance in temporarily restricted net assets and then reduces unrestricted net assets.
I would have solved the question in the following manner :-
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Unrestricted |
Temporarily restricted |
Permanently restricted |
| Research Program |
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| Investment Income |
0 |
30,000 |
0 |
| Release Restriction |
30,000 |
-30,000 |
0 |
| Expenses - from investment income |
-30,000 |
0 |
0 |
| Expenses -from beginning gains |
-71,500 |
0 |
0 |
| Subtotal |
-71,500 |
0 |
0 |
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| Investments |
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| Beginning of year |
0 |
110,000 |
2,300,000 |
| Release restriction 65% |
71,500 |
-71,500 |
0 |
| Losses 0f $50.000 - first applied to temporarily restricted and released from restriction |
38,500 |
-38,500 |
0 |
| Loss from unrestricted |
-50,000 |
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| End of year |
-11,500 |
0 |
2,250,000 |
The best option is d.), however, why are we showing $50,000 as investment loss in unrestricted whereas only $11,500 would be applied against unrestricted? Is it due to the reason that we have to first release $38,500 from temp and then classify it to unrestricted and then show $50,000 as loss separately in unrestricted column?
Anyone? What am I missing here?
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CPATx
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| Posted: 23 May 2009 at 13:14 | IP Logged
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I am totaly confused with this question ....could someone please explain ...??
Thanks in advance...
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rchxenson
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| Posted: 24 May 2009 at 13:03 | IP Logged
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basicly the key to review in this problem is that the endowment suffered a loss...
' received an endowment for $2,300,000. '
'suffered market losses that reduced the total value of the investment below its initially recorded value to $2,250,000.'
The problem stated that the endowement was 'to remain in tact' basicly telling you that the endowment principle must remain contant at the going in amount.
Since the endowment suffered a loss, that loss must be accounted for in in the General Fund.
Thus, you know that due to the Perm restriction of the 2.3 million there must be a 0 in the Per column (as you must account for the loss elsewhere), thus the only applicable answer is D
note - the headers on the rows are not matching correctly, the first row is temp restricted, the last row is perm restricted. Jus an FYI
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