A local philanthropist made an unconditional pledge to donate $100,000 to a not-for-profit organization to be paid in five equal installments of $20,000 beginning in two years. Under FASB standards the pledge would be recognized as:

• A. A liability for future payments
• B. A contribution of $100,000 when cash is received
• C. Revenue recognized over five years
• D. A contribution of $100,000 in the year the pledge was made, discounted for present value

Answer: (D)

Not-for-profit accounting treats unconditional promises to give as revenue when the promise is made, and it measures those promises at present value if the payments will be received in the future. Because the pledge is to donate in installments starting two years from now, the organization records a contribution receivable equal to the present value of those five future installments and recognizes contribution revenue for that present value in the year the pledge is made. The full nominal amount ($100,000) is not recorded as revenue upfront because of the time value of money; the difference between $100,000 and the present value is the discount on pledges that will be addressed over time as the payments come in. In short, the best treatment is to recognize a contribution in the pledge year for the pledge’s present value, discounted for present value.