Question

For each of the following situations, indicate whether the organization should recognize the described contributed services as revenue (offset by a corresponding expense). Briefly justify your response or identify key issues.

1. Nellie Wilson, the noted country-and-western singer, performs a benefit concert for the Save Our Farms Association, a political advocacy group. Wilson, who would normally charge $60,000 per concert, did not accept a fee.

2. Camp Chi-Wan-Da, a summer camp for disadvantaged youth, benefits from the services of four physicians, each of whom spends two weeks at the camp providing medical services to the campers. The doctors receive free room and board but no salary. Camp association standards require that a camp of Chi-Wan-Da’s size either have a physician on premises or have a physician on call.

3. The Taconic Music Festival, a performing arts association, needed new practice facilities. The architecture firm of Lloyd Wright designed the facilities for the association without charge, and local merchants provided the building materials. All construction work was carried out by community volunteers, only a few of whom had professional experience in the building trades.

4. A neurologist serves on the board of trustees of the Neurological Disease Foundation, an organization that funds clinical research. He was asked to serve because of his expertise in neurological research, and he chairs the committee of the board that selects grant recipients.

5. Daughters of Charity Hospital draw its nursing staff from members of its religious order. The nurses are not paid a salary. Instead, they receive free room and board and a living allowance. The total cost to the hospital is approximately 60 percent of what it would have to pay in salary and benefits on the open market. In addition, the hospital benefits from the services of “candy stripers” and other volunteers who staff the hospital’s gift shop, carry meals to patients, and perform a variety of other important functions. Were it not for these volunteers, the hospital would be required to hire additional personnel to carry out many of their duties.

Answer 1

Answer 1 )Nellie Wilson , who , generally charges $ 60000 for a concert has not charged a single $ , just for promotion activities. Had Nellie charged any amount for the concert , Revenue should have been recorded. However, in the given case, no revenue can be recorded as he or she has not accepted any fee and it seems to be no consideration transaction but a charity transaction. Since there is no business transaction , the revenue can’t be recorded.

Answer 2)Camp Chi-wan-Da is organizing a camp for disadvantaged youths . In absence of information , we assume that it is not free service to the extent the cost of the room and the routine expenses of the doctors. Since Doctors are not given any salary , there must be their incidental expenses to arrive and stay at the Camps. We assume that the disadvantaged youths are charged for the medicines etc and not for any consultation charges. Here , we would recommend to show the Revenue and the Expenditure both and with no profit no loss method . There are neither consultation fees nor salaries but the incidental expenses and the same amount of reimbursement from the patients is required to be recorded.

Answer 3)Taconic Music Festival has got their practice facilities with the help of Lloyd Wright for designing and from local merchants the building material. This seems to be an Fixed Asset kind of structure and whatever cost has been incurred should be capitalized and there is no revenue to be recorded here .

However, there is no service to be recorded as Revenue .

Answer 4 )Trust is a type of organization which serves on the principles of no profit no loss. The neurologist who serves on the board , if any remuneration is given to him , it will go to the cost of the trust. It is not clear whether he is given any remuneration or not. However, the grants received have to be recorded as Revenue but regarding his consultancy , there is no clarity given . If he is given a remuneration , it will be recorded and got set off against the trust revenue in terms of grants.

           

Answer 5 )The services from candy strippers , volunteers have been taken by the Charity Hospital and this cost has to be recorded but there is no revenue from services as it is a charity hospital and there is costs for the rooms and board and living allowance given to the Nursing staff. Hence, there is no revenue but cost which should be recorded by the organization.