Petro Society of History (PSH) is a non-profit organization that operates a community museum in Red Deer, Alberta. PSH was created in 1918 with the mandate of preserving and interpreting the history of Red Deer and the surrounding area. The museum has a large collection of art, artifacts, and monuments from the area surrounding Red Deer. In addition, PSH generally has two to three major exhibits a year that showcase collections from around Canada, and provides a free lecture series to the community.
PSH receives most of its funding primarily from government grants and contributions from wealthy individuals. In addition, funding is received from membership fees, investment income from endowments, and admission fees. The museum also holds an annual muscle car raffle to generate additional funds.
As a recently qualified professional accountant, you decide that it is time to give back to the community and volunteer your specialized services. You have always maintained an interest in art and history, and feel that being a member of the PSH board of directors would be an interesting experience for a worthwhile cause.
At your first board meeting, the chair of the board welcomes you and expresses her happiness about your decision to join. The chair explains to you that the financial statements of PSH have never been audited in the past, and have always been prepared solely for internal purposes. Special reports on financial information have been prepared and audited annually for restricted contributions.
However, the board is feeling increasing pressure to prepare general purpose financial statements. Accordingly, the chair has asked you to prepare a report that discusses the alternatives available for recognizing the funding received. Exhibit I presents some additional information on the sources of funding. Given the poor economic conditions, the board would like to keep the cost of preparing the financial statements as low as possible.
Sources of Funding
Revenue for 2020 included the following:
$200,000 (note 1)
$75,000 (note 2)
$285,000 (note 3)
Endowment fund revenue
$35,000 (note 4)
Note 1—Membership fees are recognized as revenue when money is collected.
Note 2—Admission fees are recognized as money is collected.
Note 3—Contributions are recognized when a pledge is made by the donor. Internal reports segregate the number of restricted and unrestricted contributions. Restricted funds include amounts contributed for a specific purpose and amounts segregated by the board for specific projects or purposes.
Note 4—Endowment fund revenue is recorded as the investment income accrues.
Aside from the revenue recognition issues, the chair has asked you to assist with the selection of accounting policies for the various other aspects of the museum’s operations. Additional details are provided in Exhibit II.
All capital assets are recorded at $1 to have a nominal amount provided on the financial statements. No depreciation is taken on the assets. A recent review of the capital assets indicated the following items. The amounts were estimated by one member of the board of directors:
Unable to estimate
During 2020, the flooring was replaced. The cost of new flooring was $35,000. This amount was expensed. In addition, a new HVAC unit was installed to protect the artwork from damage due to temperature. The cost was $65,000. To finance the purchase of the new HVAC system, a piece of artwork was sold.
Volunteer services are not recorded.
You have agreed to prepare a report for the next board meeting that outlines the specific accounting policies recommended. The chair has made it clear that the financial statements should comply with Part III of the CPA Canada Handbook.
Prepare the report for the board of directors.
3 months ago
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