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GAAP For Non-Profits › Specific Financial Statement Items

Contributions to Repay Debt

The treatment of a contribution to repay debt mirrors the treatment of a contribution made to fund an asset or expense for which the debt was incurred. The following will illustrate this:

Contributions to repay debt incurred on expenses or assets accounted for within a restricted fund

Where some debt is incurred on assets or expenses accounted for in a restricted fund, a contribution for the repayment of that debt would be revenue of that fund in the period. Where, for example the debt was incurred for capital assets accounted for in a restricted capital fund: a donation to repay the debt would be current revenue of the capital fund.

Contributions to repay debt incurred on assets that are not amortized, and accounted for in a general fund

If debt was incurred to fund an asset, such as land, that is not amortized and is accounted for in a general fund, a contribution for the repayment of that debt would be recognized as a direct increase in net assets, and would not pass through the statement of operations. Similarly, a contribution of land in a general fund would be treated as a direct increase in net assets. (4410.39)

Let us suppose that land and a building was recorded in a general fund, was funded by a mortgage, and the organization received a contribution to repay the mortgage. The portion of the contribution relating to the debt on the land would be recognized immediately as a direct increase in net assets, and the portion of the contribution relating to the debt on the building would be amortized into revenue on the same basis as the amortization of the building.

Contributions to repay debt incurred for the expenses of a future period; accounted for in a general fund

A contribution would be deferred on the statement of financial position, where the contribution was made to repay debt that was incurred to fund the expenses of a future period, where those expenses are accounted for in a general fund. The contribution would be recognized concurrently with the related expense. (4410.38)

Contributions to repay debt incurred for other reasons; accounted for in a general fund

If a contribution for the repayment of debt was not made to repay debt associated with an expense of a future period, or if the contribution was not made to repay the debt of an asset that will not be amortized, the contribution should be recognized immediately in the appropriate general or restricted fund. (4410.40)