Question

The board of directors for a nongovernmental not-for-profit organization decided to designate $20,000 each year for the next three years to fund a special research project it was planning to conduct at the end of the three-year period. How would these board-designated resources be reported on the statement of financial position?

a) As unrestricted net assets.
b) As temporarily restricted net assets.
c) As permanently restricted net assets.
d) As board-designated net assets.

Answer 1

Funds designated by the board of directors of a non-profit for future projects are reported as unrestricted net assets with an internal designation on the statement of financial position. These resources remain under board control and are distinguishable from donor-restricted temporary or permanent assets.

Step-by-step explanation:

The proper reporting of board-designated resources on the statement of financial position for a nongovernmental not-for-profit organization depends on the nature of the restrictions placed on those resources. In this case, the board of directors has earmarked $20,000 each year for a future research project, but these funds remain within the control of the organization and can be undesignated at the discretion of the board. Therefore, these resources are reported as unresisted net assets, but with an internal designation noted in the financial statements. The correct answer is a) As unrestricted net assets.

It's important to differentiate between internal designations by a board and externally imposed restrictions by donors. Temporarily restricted net assets typically arise from donor-imposed stipulations that expire with the passage of time or upon the occurrence of a certain event. Permanently restricted net assets are donor-restricted resources that must be maintained in perpetuity.