The chapters in this document are displayed in reversed order, with the last chapter
appearing first. This change ensures all chapters are included in the Solutions Manual.
Chapter 11 Chap 1 to 11 Included
Accounting for Not-for-Profit Organizations
Review Questions
11-1. Three ways that NFPOs differ from profit-oriented entities are:
- NFPOs do not have shareholders,
- NFPOs exist for a purpose or a cause, rather than to increase the wealth of its
shareholders, and
- NFPOs receive non-reciprocal contributions or donations.
11-2. The main users of NFPO financial statements and their objectives are:
- Members: They want to ensure that their membership fees are being used to the
benefit of the organization, that the organization is achieving its objectives and
mission, and that the organization is able to exist into the future to continue to
provide services.
- Granting agencies and donors/potential donors: Their objectives are to provide
resources to organizations that are doing the work that the grantor or donor
wishes to support.
- The general public: They may have a number of wide-ranging objectives, but
their primary objective, most likely, is to ensure that the organization’s purpose
is being fulfilled and that resources are being used appropriately.
- Creditors /potential creditors: They want to assess the credit worthiness of the
organization to ensure that any funds lent will be repaid.
These objectives impact financial reporting as the focus for NFPO reporting is not on the
bottom line or whether or not a profit was made, but rather to show how funds were used
by the operation, and also to report the types of inflows the organization received.
11-3. A NFPO might choose to use fund accounting presentation to communicate information
about its financial position and operations that is meaningful or useful to its users. For
example, if a NFPO receives grants from a government for a specific program, it might
be useful to report that program as a separate fund to communicate to the funder or
grantor how the funds are being used.
11-4. The three types of contributions are:
Endowments: These are contributions that are required to be held in perpetuity and never
spent.
Restricted: These are contributions where the donor or contributor has placed restrictions
or stipulations on how the funds are required to be used.
Unrestricted: These contributions have no restrictions placed on them and can be used as
the NFPO wants.
Copyright © 2026
11-1
,ISM for Johnstone/Dewald/Wilson, Advanced Financial Accounting in Canada, Second Edition
11-5. When the deferral method is used, contributions are accounted for as follows:
Endowments: These are reported as a direct increase to net assets, and will never be
included in or reported as revenue.
Restricted contributions: These are reported as deferred contributions in the liability
section of the statement of financial position until they are spent or used as required by
the donor. Once they are spent or used as required, restricted contributions will be
reported as revenue. Donated depreciable assets, or any portions of assets donated, are
reported as deferred contributions. These amounts are amortized to revenue on the same
basis as amortization expense is reported for the related asset.
Unrestricted contributions: These are reported as revenue in the period received or
receivable.
11-6. The difference between a restricted contribution and a board-designated internal
restriction is that a restricted contribution is restricted as to its use by the donor or
contributor. That is, the restriction comes from an entity external to the organization. A
board can only restrict its unrestricted net assets; that is, contributions that are left over
after deducting any expenses.
A restricted contribution under the deferral method is recorded as a deferred contribution
in the liability section of the statement of financial position until it is used for the purpose
required. At that point, it can be reported as revenue.
An internal restriction is shown on the statement of changes in net assets as a transfer of
funds from the unrestricted net assets to internally restricted net assets.
11-7. When the restricted fund method is used, contributions are accounted for as follows:
Endowments: These are reported as a revenue in the endowment fund (NFPOs that use
the restricted fund method are required to have a restricted endowment fund (Part III,
Section 4400.29)
Restricted contributions for which there is a restricted fund: These contributions
are reported as revenue in the related fund regardless of whether or not the amounts
have been spent or used.
Restricted contributions for which there is no restricted fund: These contributions are
reported in the General Fund using the deferral method.
Unrestricted contributions: These are reported in the General Fund as revenue in the
period received or receivable.
Copyright © 2026
11-2
,ISM for Johnstone/Dewald/Wilson, Advanced Financial Accounting in Canada, Second Edition
11-8. The restricted fund method would normally result in higher revenues than the deferral
method in the year contributions are received. This is because restricted funds may be
reported as revenue in the period received if there is a related restricted fund, whereas
under the deferral method, these funds are deferred until spent. In subsequent years,
then, the deferral method will result in higher revenues than the restricted fund method.
Endowment contributions can also result in higher revenues under the restricted fund
method because there will always be an endowment fund into which these
contributions are recorded as revenue. Under the deferral method, these contributions
are never reported as revenue; they are increases to net assets.
11-9. A statement of financial position
A statement of operations
A statement of changes in net assets
A statement of cash flows
11-10. Not-for-profit organizations are required to capitalize capital assets similar to profit-
oriented entities. However, there is an exemption for small NFPOs that allows them to
expense any capital asset purchases in the year they are acquired instead of capitalizing
and amortizing them.
To qualify for the exemption, the NFPO must have reported average revenues under
$500,000. However, once an organization begins to capitalize, they must continue with
this method and cannot revert back to expensing capital purchases.
If revenues exceed that amount, NFPOs no longer qualify for the exemption. However,
the Accounting Standards Board encourages all NFPOs to capitalize assets whether they
qualify for the exemption or not.
11-11. A pledge is a promise to contribute cash or other assets to a not-for-profit organization.
A pledge may be recorded as a receivable and revenue when both of these criteria
are met:
● The amount can be reasonably measured, and
● Ultimate collection is reasonably assured.
11-12. A collection is a work of art, historical treasures, or similar assets that have the
following characteristics:
● Held for public exhibition, education or research;
● Protected, cared for, and preserved; and
● Subject to an organizational policy that requires any proceeds from their sale to
be used to acquire other items to be added to the collection or for the direct care
of the existing collection.
Collections are not amortized because the very nature of these assets is that their value
and use are to be preserved in perpetuity, so no portion of the cost should be expensed.
Copyright © 2026
11-3
, ISM for Johnstone/Dewald/Wilson, Advanced Financial Accounting in Canada, Second Edition
11-13. How a NFPO is required to report controlled organizations depends on whether the
controlled organization is a for-profit or not-for-profit entity.
If the controlled entity is a for-profit entity, then the entity either needs to be
consolidated or reported using the equity method with additional disclosures
required. This is an accounting policy choice for the NFPO.
If the controlled entity is a not-for-profit entity, then the entity is either consolidated or
disclosures about the entity are included in the notes. It is not an option to use the equity
method for controlled not-for-profit entities.
Copyright © 2026
11-4
appearing first. This change ensures all chapters are included in the Solutions Manual.
Chapter 11 Chap 1 to 11 Included
Accounting for Not-for-Profit Organizations
Review Questions
11-1. Three ways that NFPOs differ from profit-oriented entities are:
- NFPOs do not have shareholders,
- NFPOs exist for a purpose or a cause, rather than to increase the wealth of its
shareholders, and
- NFPOs receive non-reciprocal contributions or donations.
11-2. The main users of NFPO financial statements and their objectives are:
- Members: They want to ensure that their membership fees are being used to the
benefit of the organization, that the organization is achieving its objectives and
mission, and that the organization is able to exist into the future to continue to
provide services.
- Granting agencies and donors/potential donors: Their objectives are to provide
resources to organizations that are doing the work that the grantor or donor
wishes to support.
- The general public: They may have a number of wide-ranging objectives, but
their primary objective, most likely, is to ensure that the organization’s purpose
is being fulfilled and that resources are being used appropriately.
- Creditors /potential creditors: They want to assess the credit worthiness of the
organization to ensure that any funds lent will be repaid.
These objectives impact financial reporting as the focus for NFPO reporting is not on the
bottom line or whether or not a profit was made, but rather to show how funds were used
by the operation, and also to report the types of inflows the organization received.
11-3. A NFPO might choose to use fund accounting presentation to communicate information
about its financial position and operations that is meaningful or useful to its users. For
example, if a NFPO receives grants from a government for a specific program, it might
be useful to report that program as a separate fund to communicate to the funder or
grantor how the funds are being used.
11-4. The three types of contributions are:
Endowments: These are contributions that are required to be held in perpetuity and never
spent.
Restricted: These are contributions where the donor or contributor has placed restrictions
or stipulations on how the funds are required to be used.
Unrestricted: These contributions have no restrictions placed on them and can be used as
the NFPO wants.
Copyright © 2026
11-1
,ISM for Johnstone/Dewald/Wilson, Advanced Financial Accounting in Canada, Second Edition
11-5. When the deferral method is used, contributions are accounted for as follows:
Endowments: These are reported as a direct increase to net assets, and will never be
included in or reported as revenue.
Restricted contributions: These are reported as deferred contributions in the liability
section of the statement of financial position until they are spent or used as required by
the donor. Once they are spent or used as required, restricted contributions will be
reported as revenue. Donated depreciable assets, or any portions of assets donated, are
reported as deferred contributions. These amounts are amortized to revenue on the same
basis as amortization expense is reported for the related asset.
Unrestricted contributions: These are reported as revenue in the period received or
receivable.
11-6. The difference between a restricted contribution and a board-designated internal
restriction is that a restricted contribution is restricted as to its use by the donor or
contributor. That is, the restriction comes from an entity external to the organization. A
board can only restrict its unrestricted net assets; that is, contributions that are left over
after deducting any expenses.
A restricted contribution under the deferral method is recorded as a deferred contribution
in the liability section of the statement of financial position until it is used for the purpose
required. At that point, it can be reported as revenue.
An internal restriction is shown on the statement of changes in net assets as a transfer of
funds from the unrestricted net assets to internally restricted net assets.
11-7. When the restricted fund method is used, contributions are accounted for as follows:
Endowments: These are reported as a revenue in the endowment fund (NFPOs that use
the restricted fund method are required to have a restricted endowment fund (Part III,
Section 4400.29)
Restricted contributions for which there is a restricted fund: These contributions
are reported as revenue in the related fund regardless of whether or not the amounts
have been spent or used.
Restricted contributions for which there is no restricted fund: These contributions are
reported in the General Fund using the deferral method.
Unrestricted contributions: These are reported in the General Fund as revenue in the
period received or receivable.
Copyright © 2026
11-2
,ISM for Johnstone/Dewald/Wilson, Advanced Financial Accounting in Canada, Second Edition
11-8. The restricted fund method would normally result in higher revenues than the deferral
method in the year contributions are received. This is because restricted funds may be
reported as revenue in the period received if there is a related restricted fund, whereas
under the deferral method, these funds are deferred until spent. In subsequent years,
then, the deferral method will result in higher revenues than the restricted fund method.
Endowment contributions can also result in higher revenues under the restricted fund
method because there will always be an endowment fund into which these
contributions are recorded as revenue. Under the deferral method, these contributions
are never reported as revenue; they are increases to net assets.
11-9. A statement of financial position
A statement of operations
A statement of changes in net assets
A statement of cash flows
11-10. Not-for-profit organizations are required to capitalize capital assets similar to profit-
oriented entities. However, there is an exemption for small NFPOs that allows them to
expense any capital asset purchases in the year they are acquired instead of capitalizing
and amortizing them.
To qualify for the exemption, the NFPO must have reported average revenues under
$500,000. However, once an organization begins to capitalize, they must continue with
this method and cannot revert back to expensing capital purchases.
If revenues exceed that amount, NFPOs no longer qualify for the exemption. However,
the Accounting Standards Board encourages all NFPOs to capitalize assets whether they
qualify for the exemption or not.
11-11. A pledge is a promise to contribute cash or other assets to a not-for-profit organization.
A pledge may be recorded as a receivable and revenue when both of these criteria
are met:
● The amount can be reasonably measured, and
● Ultimate collection is reasonably assured.
11-12. A collection is a work of art, historical treasures, or similar assets that have the
following characteristics:
● Held for public exhibition, education or research;
● Protected, cared for, and preserved; and
● Subject to an organizational policy that requires any proceeds from their sale to
be used to acquire other items to be added to the collection or for the direct care
of the existing collection.
Collections are not amortized because the very nature of these assets is that their value
and use are to be preserved in perpetuity, so no portion of the cost should be expensed.
Copyright © 2026
11-3
, ISM for Johnstone/Dewald/Wilson, Advanced Financial Accounting in Canada, Second Edition
11-13. How a NFPO is required to report controlled organizations depends on whether the
controlled organization is a for-profit or not-for-profit entity.
If the controlled entity is a for-profit entity, then the entity either needs to be
consolidated or reported using the equity method with additional disclosures
required. This is an accounting policy choice for the NFPO.
If the controlled entity is a not-for-profit entity, then the entity is either consolidated or
disclosures about the entity are included in the notes. It is not an option to use the equity
method for controlled not-for-profit entities.
Copyright © 2026
11-4
