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A local philanthropist made an unconditional pledge to donate $100,000 to a not-for-profit organization to be paid in five equal installments of $20,000 beginning in two years. Under FASB standards the pledge would be recognized as:
a. A contribution of $100,000 in the year the pledge was made, discounted for the difference between the pledge and its present value.
b. Deferred support of $100,000 in the year the pledge was made.
c. A contribution of $20,000 in each of the five years a contribution is made.
d. A contribution of $100,000 in the year the pledge is made, adjusted for the estimated uncollectible amount.

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Answer:

The correct answer is C)

Explanation:

A pledge in this context is a vow or a promise to make a donation or give something at a future date. It may be vocalized or communicated in writing.  

The Financial Accounting Standards Board (FASB), sets out the criteria for recognizing a pledge or a promise as follows:

  1. Relevance— If the promise is important enough to make a difference in the users  decisions,  then it ought to be recognized
  2. Definitions—If the item satisfies the definition of a component of a financial statement, then it ought to be recognized;
  3. Dependability— When the pledge is based on a fact that can be recorded, verifiable, and neutral, then it can be recognized
  4. Measurability— if it allows for measurability, then it should be recognized

It is clearly stated that where the certainty or reliability of a promise or a vow is difficult that measure, it is better to decline from recognizing such a pledge.

                 

Cheers!                      

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