\"Accounting Standards for Colleges and Universities\" Participate in the follow

Question

"Accounting Standards for Colleges and Universities" Participate in the following activities in order to complete the discussion:

Using Chapter 13 in the textbook, summarize the major types of colleges and universities. Identify the accounting standards that these educational institutions are required to follow. Imagine that you work in the accounting department of a university and your boss has asked you to prepare a financial statement presentation of the endowments.

Discuss the three (3) types of endowments and how they are presented on the financial statements of a public and a private university or college. In your discussion explain the restrictions imposed on each type of endowment and the corresponding justification for designation as restricted or unrestricted.

Explanation / Answer

Part (a) Types of endowment funds

An endowment fund is created when a donor or the Board of Trustees specify that a gift is to be invested and only the income earned on that gift may be spent for a specific purpose. The gift amount is referred to as the principal or corpus and is held in a fund that is managed by the Finance Department. There are two basic types of endowment funds --- true endowment and quasi endowment. A true endowment is defined as an endowment in which the donor stipulates that the corpus must be held inviolate and in perpetuity and invested to generate income to be spent for a specific purpose. Funds that are designated as endowment by the governing board of an institution (Board of Trustees) are called quasi endowment. These funds are also invested for the purpose of generating expendable income for a given purpose, but, as the funds are internally designated as endowment, the governing board can decide to spend the funds at any time. In some cases, donors will allow for the corpus of their endowment to be spent. This is also categorized as a quasi endowment. To spend the principal of a quasi endowment fund requires Board of Trustee approval or donor authorization.

Part (b) Presentation on the financial statements

The following information about all endowment funds is required to be disclosed for each period for which the organization presents financial statement -

Part (c) The restrictions imposed on each type of endowment and the corresponding justification for designation as restricted or unrestricted. Pursuant to FASB ASC 958-205-45-14, each source - original gift, gains and losses, interest and dividends - must be evluated separately when classifying an endowment fund.

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