Document ID: chunk:federal_register_of_legislation:F2023C00188:reg:7:p30
Version: federal_register_of_legislation:F2023C00188
Segment Type: reg
Provision Reference: reg 7 (pt 30/91)
Character Range: 88103–91121

At the public launch of Charity C's appeal for donations, Charity C:

                    reaffirmed its 20-year history of building water wells in Kenya, with the funds raised for building water wells having been used only for that purpose and in that country.  This has been the established practice despite its disclaimer that donated money may be used for other aid activities in response to changing circumstances;

                    publicly reinforced its commitment that the funds raised through this appeal are to be used only in respect of building wells in the identified country;

                    pledged to return the donated funds if Charity C is unable or not required to spend the funds to build wells in Kenya.  This is despite the disclaimer that Charity C can redirect the funds to other aid activities in response to changing circumstances; and

                    publicly stated that each donation of $800 will construct two water wells.  (The cost of well construction can vary from that, depending on any problems faced and efficiencies achieved.)

    Consistent with Examples 7B and 7C, Charity C determines it controls a financial asset within the scope of AASB 9 and does not have a related contribution by owners, lease liability, financial liability or provision, as specified in another Australian Accounting Standard.

    In contrast to Examples 7B and 7C, Charity C determines that the donations arise under contracts with customers, as defined under AASB 15.  This is because:

                    the expectations raised through the commitment to refund unspent funds makes the agreements enforceable; and

                    the public statements it has made and its long-standing practices, which create a valid expectation that the funds will be spent on the task of building wells in the identified country, are sufficiently specific as Charity C has committed that each donation of $800 will construct two water wells.

    Accounting treatment

    Charity C recognises each donation as a contract liability in accordance with AASB 15, when it gains control of the donated cash.  Income is not recognised in respect of a donation until the specified two water wells have been built.

    The journal entries for the accounting (aggregating the journal entries for individual donations) are:

      Debit Credit

     Initial recognition (aggregate)

     Cash  160,000

     Contract liability  160,000

     Wells built (aggregate)

     Contract liability 160,000

     Income  160,000

     Expenses – construction of 400 wells 153,000

     Cash  153,000

    Example 8—Multi-year cash grant
    The Local Government enters into an agreement with the State Government in the form of a Memorandum of Understanding (MOU)[1] to receive a multi-year cash grant of $90,000 from the State Government, which is received in full on 24 June 20X0.  The grant is to fund education programs over three years commencing 1 July 20X0, with the objective of increasing the