Section 4431: Tangible Capital Assets Held by Not-for-Profit Organizations

ASNPO 4431

To save money and time for small NPO’s there is a rule that simplifies accounting for tangible capital assets
A not-for-profit organization does not need to follow the rules in this section if the average of annual revenues recognized for the current and preceding period of the organization and any entities it controls is less than $500,000
If this is met the NPO can:
1. Directly expense the costs of tangible capital assets
2. Capitalize the costs of tangible capital assets and not amortize; or
3. Choose to follow this section; thereby, capitalizing and amortizing the cost of tangible capital assets
If the NPO chooses not to capitalize and amortize tangible capital assets; they must disclose:
1. the policy followed in accounting for tangible capital assets
2. information about tangible capital assets not capitalized, including a description of the assets; and
3. if tangible capital assets are expensed when acquired, the amount expensed in the current period.
Once the organization fails to meet this criteria, it can never get on side; this means that even if revenues dip down below 500K in the future, the organization must still follow 4431 and capitalize and amortize tangible capital assets

A tangible capital asset (i.e. property, plant and equipment) is recorded at cost
- The cost of the tangible capital asset include the following: purchase price, installation costs, design and engineering costs, legal fees, survey costs, site preparation, freight charges, transportation insurance costs, import duties
A contributed tangible capital asset is recorded at the fair value on the date of contribution; if the fair value is not known the tangible capital asset and the related contribution revenue is recorded at a nominal amount (i.e. $1)
Betterments are capitalized (betterments increase the service potential by increasing quality/quantity of the output or the useful life of the asset

Tangible capital assets with a limited useful life are to be amortized
The cost less residual value is amortized over the useful life
The amortization method and the estimate of the useful life of a tangible capital asset should be reviewed on a regular basis

When a tangible capital asset no longer contributes to the organization’s ability to provide services, its carrying amount would be written down to residual value
A write-down should not be reversed