A donor gave equipment valued at $60,000 at the beginning of 2017 to a private not-for-profit organization. The equipment had a 10-year life and depreciation of $6,000 was charged during 2017. At the end of the year, the net assets to be reported in unrestricted net assets related to this equipment would be?
Business · High School · Thu Feb 04 2021
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At the end of 2017, the net assets to be reported in unrestricted net assets related to this equipment would be calculated by subtracting the depreciation for the year from the equipment's value.
The equipment was valued at $60,000 at the beginning of the year. With a 10-year life, the annual depreciation would be $60,000 / 10 years = $6,000 per year. Since $6,000 of depreciation was charged during 2017, we need to reduce the value of the equipment by this amount to determine its net asset value at the end of the year.
Here's the calculation:
Original value of the equipment: $60,000 Minus Depreciation for 2017: $6,000 Net asset value at end of 2017: $60,000 - $6,000 = $54,000
Therefore, the net assets to be reported in unrestricted net assets related to this equipment at the end of 2017 would be $54,000.
Extra: In accounting, depreciation is a method of allocating the cost of a tangible asset over its useful life. It represents how much of an asset's value has been used up. For not-for-profit organizations, the reporting of assets such as equipment must be done carefully to reflect their usage and remaining value. When an asset is donated, it is initially recorded at its fair market value at the time of the donation. Over time, depreciation reduces the recorded value of the asset to account for wear and tear or obsolescence.
The term "unrestricted net assets" refers to funds that a not-for-profit organization may use for any purpose, as they are not restricted by donors or grant providers. When equipment is donated and there are no donor-imposed restrictions, the net assets associated with that equipment after depreciation would fall under the category of unrestricted net assets.
Accountants use different methods of depreciation, but the simplest and most commonly used method is straight-line depreciation, which is the method used in the calculation above. This method assumes that the asset will lose the same value each year over its useful life, which makes for easy calculation and consistent financial reporting.