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The FASB issued Statement of Financial Accounting Standards No. 116, Accounting for Contributions Received and Contributions Made (SFAS No. 116) to provide consistent guidance for recognizing contributions received and contributions made. It applies to all entities that make or receive contributions and will eliminate inconsistencies in the current guidance.
Identifying Contributions
A contribution is an unconditional transfer of cash or other assets to an entity or a settlement or cancellation of its liabilities in a voluntary, non-reciprocal transfer. Contributions include promises to make such transfers in the future, but exclude transfers of assets in which the reporting entity acts as an agent, trustee or intermediary, rather than as a donor or donee. Although the definition does not include transfers of assets that are in substance purchases of goods or services, SFAS No. 116 does apply if an entity voluntarily transfers assets or performs services in exchange for assets of substantially lower value.
Sometimes, distinguishing between contributions and other transactions requires judgment. Grants, sponsorships and membership dues may be the most troublesome. In each case, an entity will have to determine if the transfer is non-reciprocal, is made or received voluntarily and is unconditional. For example, determining whether meet the definition of a contribution depends on whether the value received by the member is commensurate with the dues paid. If the value received is less than the dues payment, the dues may be part contribution and part exchange.
Accounting for Contributions Received
In general, entities must recognize contributions as revenue in the period received, and as assets or decreases of liabilities as appropriate.
Unconditional promises to give in the future also are recognized as revenue in the period received if
1) there is verifiable documentation that a promise...