OUESTION $6(15$ marks$)$

Lily Point $($LP$)$ is a not$-$for$-$profit organization set up to facilitate creating an organic fertilizer programs

for organic farms. It is being funded by an annual government grant of $$525,000$ for each of the next $5$

years. LP has recently completed its first year of operations and has come to you for advice regarding its

first set of financial statements for the year ended December $31,2023.$ LP$\text{'}$s accounting systems are run

by Carl, who has several years experience from the accounting department of a major company, but who

has never done not$-$for$-$profit accounting. It is now January $15,2024$ and Carl would like to set up

accounting policies that can be used for a least the term of the government grant. He has specifically

asked that you provide advice on the following issues.

REQUIRED:

a$)$ Lily Point completed its first fundraising campaign in December $2023.$ It was successful and

resulted in pledges totaling $$50,000,$ for use at management's discretion, to be collected in

March $2023.$ Carl is hopeful that $90\%$ of the pledges will be collected.

i$)$ Explain whether the pledges can be set up as an asset on the statement of financial position

as at December $31,2023.(2$ marks$)$

ii$)$ Disregard your answer to $($i$)$ and assume that the pledges can be recorded for financial

statement purposes. Prepare the journal entry that would be recorded. $(2$ marks$)$

b$)$ Lily Point received a donation hybrid tractor on January $1,2023.$ It had a list price of $$40,000,$ but

Carl decided that the $$40,000$ price was unreasonable and recorded the tractor at the nominal price

of $$1,000.$ Carl was considering buying a similar hybrid tractor for his own farm use and received

a quoted cash price of $$35,000.$ He was told the tractor should last $10$ years. Carl would like you

to:

i$)$ Briefly discuss how LP should account for donated capital assets. $(2$ marks$)$

ii$)$ Provide all of the journal entries that should be made relating to the tractor for $2023,$

assuming that LP uses the deferred contribution method of accounting. $(5$ marks$)$

c$)$ Lily Point also received a donation of land with a value of $$50,000$ for a future head office

building. Carl would like you to briefly discuss the following, assuming that LP elects to use

restricted fund accounting.

i$)$ Indicate how LP would account for the land if it had a separate capital fund. $(1$ mark$)$

ii$)$ Indicate how LP would account for the land if it had no separate capital asset fund.

$($Journal entries are not required$).(1$ mark$)$

d$)$ Lily Point also received a $$200,000$ donation on December $31,2023$ with a requirement that the

$$200,000$ must be retained by LP$,$ but that interest on the donation can be spent on operations.

Prepare the journal entry LP should record on December $31,2023$ Corp under:

i$)$ Restricted fund accounting, assuming LP has a separate fund set up for such donations.

$(1$ mark$)$

ii$)$ The deferred contribution method of accounting. $(1$ mark$)$