Question 1: Not-for-profit Accounting(30 marks)Intercity Youth HomeIntercity Youth Home (IYH) is a not-for-profit organization that provides counselling andsupport services to children under the age of 18. IYH typically houses teenagers who havebeen in trouble with the police and who have troubled home lives as well as addictions todrugs and alcohol. IYH receives most of its funding through the provincial government andprivate contributions.In November 2013, IYH had a major fundraising effort and was able to raise $125,000 inprivate contributions to purchase a group home. In April 2014, the organization was able tosecure a $75,000 mortgage and purchased a house for $200,000. Since then, IYH hascontinued its fundraising activities and was able to raise $110,000 in donations in 2014 tobe used to support the group home. The funds raised annually for the group home are usedto employ several in-house social workers on an hourly basis and pay the operatingexpenses of the home.In addition to the group home, IYH continues to operate in separate rented premises thatprovided daily counselling and support services. This counselling office employs 10 socialworkers who also are involved in overload group home work that cannot be handled by thegroup homeâ€™s in-house social workers. As a result of the increase in work related to thegroup home, and the resulting increase in the payroll costs of regular IYH social workers, IYHis currently running a deficit in its operating fund. Fundraising for the counselling activities,which is separate from fundraising for the group home, has not been sufficient to cover thisdeficit. A major fundraising drive to secure donations for IYH counselling services and thegroup home is planned for 2015.IYH is fortunate to also have 18 volunteers who provide support services in the group homeand the counselling office.You are an accountant friend of the IYH Executive Director who has asked you to makerecommendations that would improve the reporting practices and transparency of the IYH.The Executive Director has said to you:As you know, our needs for private donations are greater than ever. Dueto government cutbacks, government funding is being reduced andprivate donations have become a very important funding source.However, we are in strong competition with some other very worthyorganizations for limited private funding. Recently, some of the people wehave approached for private donations have suggested that our reportingpractices are lacking, especially in terms of information regarding wherewe spent past donations, our current financial position, and oureffectiveness in achieving the purposes for which we receive money. Sinceyou are an expert in accounting and knowledgeable of accountingreporting for non-profit organizations, we were hoping you might be ableto advise us how to improve our annual reporting. Could you recommendimprovements to the way we are reporting financial activities so that weare in accordance with accounting standards, as well as providesuggestions to how we can improve the information value for donors?He then gave you the statement of operations and the balance sheet of IYH (see below).Intercity Youth HomeStatement of OperationsFor the Year Ended December 31, 2014Operating Fund:Revenues:Donations to IYHFunding from ProvincialGovernmentInvestment IncomeTotal RevenuesExpenses:Staff SalariesPayroll â€“ Social WorkersOffice ExpensesTotal ExpensesExcess of Revenues overExpensesOperating Fund Bal â€“ Jan 1Deficit â€“ Dec 31$180,000$$$250,0002,500432,500$$$$85,000325,00045,000455,000-$-$22,5007,000-$29,500Capital Fund:Revenues:Donations to group home$110,000Expenses:Payroll â€“ Social WorkersOperating ExpensesHome PurchaseMortgage PaymentsTotal ExpensesExcess of Revenues overExpensesCapital Fund Bal â€“ Jan 1$$$$$65,00035,000200,0008,500308,500-$$198,500125,000Deficit â€“ Dec 31-$73,500Intercity Youth HomeStatement of Financial PositionAs at December 31, 2014AssetsCashDonor Pledges12,00012,000$Liabilities$$24,000Accounts PayableMortgage Payable$$4,50075,000Fund BalanceOperating FundCapital Fund-$-$29,50073,500-$23,500Additional Information:1. Included in operating expenses for the Operating Fund was the purchase of a new laptopfor $5000.2. IYH maintains one bank account into which it deposits donations for both IYH and thegroup home.Required:Comment on ways in which IYHâ€™s reporting might be improved to enhance the informationalvalue for donors and the accuracy of reporting according to non-profit accounting standardsas set out by the CICA handbook. Provide at least 10 well-developed points.(A strong answer to this question is usually 1.5 to 2 double-spaced pages in length.)
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