Question

Finest Art Gallery (Finest) is a major art gallery in Toronto. Finest has the largest collection of art in Canada and has five major exhibits a year. Finest is a not-for-profit organization with funding received primarily from private contributors and government grants.
The board of directors turns over its members every three years. A new board just announced for 20X3 to 20X5 has a number of younger members who have rejuvenated a previous idea to expand a previous idea to expand a new section of the gallery for the work of children. This would require major fundraising over the next few years. It is anticipated that this addition would attract a wider audience to the gallery and encourage young children to become interested in art at an early age.
The new board, although energetic and ambitious, lacks knowledge of accounting. Board members were recruited for their marketing skills and love of art. They have asked you, CA, to assist them over the next few months in selecting accounting policies and provide recommendations for changes to their existing policies. They want to comply with any CICA Handbook recommendations for not- for- profit organizations, but are not familiar with the Handbook’s content. You have committed to preparing a report for the next board meeting outlining specific accounting policies. If you recommend any changes, they must be fully supported. The board is concerned with the costs involved with preparing financial statements and wants to minimize these costs.
After the meeting with the board of directors you sat down and reviewed the financial statements for 20X3. Notes from your review are included in Exhibit D.
A set of financial statements has been provided to any donors who requested them in the past. In addition, government agencies require a set of audited financial statements as a requirement for government grants.

Required
Prepare the report for the board of directors.
Exhibit D
1. The financial statements include a statement of income and expenditures and a statement of financial position. A cash flow statement was not prepared since it was felt that it does not provide meaningful information.
2. Revenues for 20X3 included the following:
Memberships............................................................................................................. $ 600,000
Admission fees.......................................................................................................... 800,000
Government grants................................................................................................... 2,000,000
Contributions........................................................................................................... 450,000
Endowment fund revenue......................................................................................... 950,000
3. Admission fees are recognized as money is collected. Contributions are recognized when a pledge is made by the donor. Notes to the financial statements segregate the number of restricted and unrestricted contributions. Restricted funds include any amounts donated for a specific purpose and amounts segregated by the board for future expansion or special projects.
4. All capital assets are recorded at a dollar value to have a nominal amount provided on the financial statements. No amortization is taken on these assets. A recent review of the capital assets indicated the following items. The amounts were estimated by one of the board of directors:
Office equipment..................................................................................................... $ 500,000
Automobiles............................................................................................................. 70,000
Facilities.................................................................................................................. 10,000,000
Artwork unable to estimate
5. During 20X3, the roof was replaced on the art gallery at a cost of $ 260,000. This amount was expensed. In addition, a new air- conditioning unit was installed to protect the artwork from damages due to temperature changes. The cost was $ 300,000. To finance the purchase of the new air- conditioning system, a piece of art-work was sold.
6. Volunteer services are not recorded.
7. For fundraising, a portion of the advertising and promotion costs incurred are allocated to education expenditures each year.



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  • CreatedMarch 13, 2015
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