ACCT 356-Not-for-profit Accounting

| March 30, 2017

Question
ACCT 356, ,

30 Marks

Comment on ways in which IYH’s reporting might be improved to enhance the informational value for donors and the accuracy of reporting according to non-profit accounting standards as set out by the CICA handbook. Provide at least 10 well-developed points.
(A strong answer to this question is usually 1.5 to 2 double-spaced pages in length.)

Question 1: Not-for-profit Accounting

(30 marks)

Intercity Youth Home
Intercity Youth Home (IYH) is a not-for-profit organization that provides counselling and
support services to children under the age of 18. IYH typically houses teenagers who have
been in trouble with the police and who have troubled home lives as well as addictions to
drugs and alcohol. IYH receives most of its funding through the provincial government and
private contributions.
In November 2013, IYH had a major fundraising effort and was able to raise $125,000 in
private contributions to purchase a group home. In April 2014, the organization was able to
secure a $75,000 mortgage and purchased a house for $200,000. Since then, IYH has
continued its fundraising activities and was able to raise $110,000 in donations in 2014 to
be used to support the group home. The funds raised annually for the group home are used
to employ several in-house social workers on an hourly basis and pay the operating
expenses of the home.
In addition to the group home, IYH continues to operate in separate rented premises that
provided daily counselling and support services. This counselling office employs 10 social
workers who also are involved in overload group home work that cannot be handled by the
group home’s in-house social workers. As a result of the increase in work related to the
group home, and the resulting increase in the payroll costs of regular IYH social workers, IYH
is currently running a deficit in its operating fund. Fundraising for the counselling activities,
which is separate from fundraising for the group home, has not been sufficient to cover this
deficit. A major fundraising drive to secure donations for IYH counselling services and the
group home is planned for 2015.
IYH is fortunate to also have 18 volunteers who provide support services in the group home
and the counselling office.
You are an accountant friend of the IYH Executive Director who has asked you to make
recommendations that would improve the reporting practices and transparency of the IYH.
The Executive Director has said to you:
As you know, our needs for private donations are greater than ever. Due
to government cutbacks, government funding is being reduced and
private donations have become a very important funding source.
However, we are in strong competition with some other very worthy
organizations for limited private funding. Recently, some of the people we
have approached for private donations have suggested that our reporting
practices are lacking, especially in terms of information regarding where
we spent past donations, our current financial position, and our
effectiveness in achieving the purposes for which we receive money. Since
you are an expert in accounting and knowledgeable of accounting
reporting for non-profit organizations, we were hoping you might be able
to advise us how to improve our annual reporting. Could you recommend
improvements to the way we are reporting financial activities so that we
are in accordance with accounting standards, as well as provide
suggestions to how we can improve the information value for donors?
He then gave you the statement of operations and the balance sheet of IYH (see below).
Intercity Youth Home
Statement of Operations

For the Year Ended December 31, 2014
Operating Fund:
Revenues:
Donations to IYH
Funding from Provincial
Government
Investment Income
Total Revenues
Expenses:
Staff Salaries
Payroll – Social Workers
Office Expenses
Total Expenses
Excess of Revenues over
Expenses
Operating Fund Bal – Jan 1
Deficit – Dec 31

$

180,000

$
$
$

250,000
2,500
432,500

$
$
$
$

85,000
325,000
45,000
455,000

-$
-$

22,500
7,000

-$

29,500

Capital Fund:
Revenues:
Donations to group home

$

110,000

Expenses:
Payroll – Social Workers
Operating Expenses
Home Purchase
Mortgage Payments
Total Expenses
Excess of Revenues over
Expenses
Capital Fund Bal – Jan 1

$
$
$
$
$

65,000
35,000
200,000
8,500
308,500

-$
$

198,500
125,000

Deficit – Dec 31

-$

73,500

Intercity Youth Home
Statement of Financial Position
As at December 31, 2014
Assets
Cash
Donor Pledges

12,000
12,000

$
Liabilities

$
$

24,000

Accounts Payable
Mortgage Payable

$
$

4,500
75,000

Fund Balance
Operating Fund
Capital Fund

-$
-$

29,500
73,500

-$

23,500

Additional Information:
1. Included in operating expenses for the Operating Fund was the purchase of a new laptop
for $5000.
2. IYH maintains one bank account into which it deposits donations for both IYH and the
group home.
Required:
Comment on ways in which IYH’s reporting might be improved to enhance the informational
value for donors and the accuracy of reporting according to non-profit accounting standards
as set out by the CICA handbook. Provide at least 10 well-developed points.
(A strong answer to this question is usually 1.5 to 2 double-spaced pages in length.)

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