tin man memorial hospital a non taxpaying entity is starting a new inpatient heart c 613263

Accounting for donations to non-profit organisations

An entity decides to enter into an arrangement to ‘donate’ €1m in cash to a university. A number of different options are available for the arrangement and the entity’s management want to determine whether the terms of these options make any difference to the timing, measurement or presentation of the €1m expenditure, as follows:

Option 1: The entity enters into an unenforceable contract to contribute €1m for general purposes. The benefits to the entity are deemed only to relate to its reputation as a ‘good corporate citizen’; the entity does not receive any consideration or significant benefit from the university in return for the donation.

Option 2: As per Option 1 except the entity publishes a press release in relation to the donation and announcing that payment is to be made in equal instalments of €200,000 over 5 years.

Option 3: As per Option 2, except that the contract is legally enforceable in the event that the entity does not pay all the instalments under the contract.

Option 4: As per Option 2, except that the entity is only required to make the donation if the university raises €4m from other sources.

Option 5: As per Option 2, except that the contract is legally enforceable and the funds will be used for research and development activities specified by the entity. The entity will retain proprietary rights over the results of the research.