Conditional Pledge Example
Suppose a donor commits $10,000 in June 2017 and January 2018. Typically, you create a pledge application and enter the income for the June 2017 fiscal year. If the payment was received in January 2018, apply it to the claim. No new income will take place in January, as the revenues have already been recorded. Revocable and irrevocable gifts: Many donors make planned gifts through their wills (bequests), living trusts, life insurance and other revocable agreements that only become irrevocable upon the donor`s death. Accounting standards do not allow revocable gifts to be recognized as pledges. If the funds are to be received within one year, it is permissible to record the total amount of the lien and not just its current value. In summary, the development department and accounting play a crucial role in the contribution process. The organization is better off if the two departments work together and speak the same language. Taking the time to explain the role of the accounting department in the valuation and recording of commitments to the development department will ultimately avoid potential revenue recognition issues. A promise should not be recognized without proof of agreement with the donor.
The best form of proof of a promise is an agreement signed by the donor in which all the terms of the pledge are stated in a clear and concise manner. Some organizations have a standard template for the commitment agreement that all donors must sign. If a donor refuses to sign an agreement, it may be unwise to register the pledge, as they are unlikely to sign an audit confirmation if they receive one. To meet the criteria for a promise, look for fixed language such as "promise," "promise," or "agreement." If the donor uses a fixed language and does not set any conditions for the contribution, the timing of the recognition of income is usually linked to the date of the commitment. If the wording gives the donor leeway to evade their obligation – for example, when they use words like "plan," "intend," or "hope" — this is called an intention to give. Donation intentions are considered conditional and cannot be recorded as income. If a donor promises that a contribution of a certain amount will be made and then fulfills the pledge with a gift of shares, it is possible that the fair value of the share is less than the amount of the pledge. If so, contact the donor to find out how the rest of the pledge will be kept. Otherwise, the donor may assume that the obligation has been fulfilled and will not bring any additional assets. For example, Henry Horne promises a high school basketball team that on October 10, 2015, he will pay $10,000 and $200 more for each basketball game the team wins during the 2015-2016 season. The high school received an unconditional commitment to donate $10,000, which it would recognize at the time of Henry`s promise, and a conditional commitment for which it would recognize a contribution of $200 each time the basketball team won a game during the 2015-2016 season.
Commitments must be sorted by the year in which we expect payment. Since commitments are payments to be made in future years, the present value of future revenues must be determined before commitments are recognised in the financial statements. Donor-advised funds: A donor-advised fund (CFO) is treated as a public charity, so a person who uses a CFO as a donation vehicle receives a non-profit tax deduction at the time the personal assets are transferred to the CFO. The funds are then controlled by the CFO, not by the individual. This means that a person who makes a donation through a CFO cannot make a legally binding commitment on behalf of the CFO. Therefore, funds from a CFO cannot be counted as collateral. It should also be noted that a gift from a CFO cannot be used to repay a donor`s promise. A donor who plans to donate to the university through a CFO may sign a "non-binding donation intent"," but this will not be recorded as a commitment in the university`s annual financial statements. If University Relations learns that a donor intends to repay their personal promise with a CFO, the iirologist must be informed so that the pledge can be written off for graduation purposes.
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