ACCA Applied Skills · Financial Reporting · Not-for-profit and public sector entities
A school charity receives a $50,000 restricted donation to be used only for building a library. Which treatment best reflects the nature of such an entity's financial reporting?
A restricted donation should be reported as a separate restricted fund because it can only be used for the donor's specified purpose, here building a library. This gives accountability to donors and stakeholders. It is neither free income nor a loan.
- ARecognise it as ordinary unrestricted income and spend it freely
- BShow it separately as a restricted fund, with the use limited to the stated purpose and reported accordinglyCorrect
- CIgnore it until the library is complete
- DTreat it as a loan repayable to the donor
Explanation
Restricted donations must be used for the stated purpose, so they are tracked in a separate restricted fund to show stewardship and accountability. Treating them as unrestricted ignores the donor's condition, and they are not loans.
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