Grant or Gift?
Some time ago many university personnel used a simple guide for determining whether resources received were a grant or a gift. If a report to the provider was required, it was a grant. If no report was required, it was a gift. Actually, the definition is not so simple. Some grants do not require a report to the provider, and some gift donors require an annual report.
Today accounting standard setters and others are using the terms exchange and nonexchange to determine whether resources received are a grant or a gift. If the resource provider expects nothing in exchange for the resources provided, the revenue is classified as a gift (nonexchange transaction). If the resource provider expects performance or the receipt of something in exchange for the resources provided, the revenue is classified as a grant (exchange transaction).
FASB Standard No. 116, Accounting for Contributions Received and Contributions Made introduced exchange contracts. Exchange contracts are reciprocal transfers in which each party receives and sacrifices something of approximate equal value. Determining resources received as grants or as gifts may require judgment concerning whether a reciprocal transaction has occurred. One must determine whether the institution has given up the rights, privileges, or assets in an amount equal to the value of the assets, rights, or privileges received. The value of what was given and what was received must be determined from both the provider’s and the institution’s perspective. Lots of variables can affect the transaction.
Two straightforward illustrations of an exchange transaction and nonexchange transaction are as follows:
A contract for research is an exchange transaction as the university receives resources to perform the work prescribed in the agreement. The contractor receives the work's output called for in the contract. Some research contracts are for exploratory activity with the provision if anything is found that could be patented, licensed or royalties, the contractor will own the benefits. Those agreements are, for the most part, also identified as exchange transactions (even though if something is found, the contractor will receive a greater exchange than the university).
A grant for student scholarship would not be an exchange transaction. The grantor provides resources to support the university's mission (scholarship) and expects nothing in return of equal value. A report of the recipient's name would not satisfy the equal value exchange criteria. In this case, the transaction would be a contribution/nonexchange transaction.
The following is a list of situations that can be helpful in identifying whether the resources provided and received by the university should be classified as a gift (contribution/nonexchange transaction) or as a grant (exchange contract). Although the list is not all inclusive, it helps identify those transactions that require additional inquiry into their nature for appropriate recognition
|Gift (Nonexchange contribution)||Grant (Exchange contract)|
|The university solicits resources as a contribution.||The university seeks resources in exchange for specified benefits or services.|
|Resource provider affirms that it is making a donation to support the university’s programs.||Resource provider affirms that it is providing resources in exchange for specified benefits or services.|
|The resource provider determines the amount of the payment.||The resource provider’s payment equals the value of the specified benefits or services including the services’ cost plus any markup. The total payment is based on the quality of benefits or services to be provided.|
|The time or place of delivery of the resources provided by the university to a third-party recipient is at the discretion of the university.||The time or place of delivery of the resources provided by the university to a third-party recipient is at the discretion of the resource provider.|
|The university is not penalized for nonperformance. Any unspent unrestricted resources may be retained. Restricted resources are retained for disbursement in future fiscal periods.||The university is penalized for nonperformance.|
|The university delivers the assets to individuals or organizations other than the donor.||The university delivers the assets to resource provider or individuals or organizations connected to the resource provider.|
|The fair value of the resources received by the university is disproportionately greater than the goods or services provided.||Payment is for the normal cost of the goods or services.|
In cases where it may be difficult to ascertain the status of the resources provided to Bradley University, particularly when the resources are from a foundation, a determination of the status as being an exchange transaction or a nonexchange transaction will be made by the Controller’s Office with input from the Development Office and the Office of Sponsored Programs.