Question

A museum received gifts of two valuable paintings. It recorded the value of one as an asset and rec- ognized the corresponding revenue. It gave no accounting recognition to the other. What might be a legitimate explanation for such an apparent inconsistency?

Answer 1

Solution:-

FASB Stmt No. 116 says that entities need not recognize contributions of collectibles as long as the items satisfy ALL of the following conditions:
1.)They are held for public exhibition, education, or research in furtherance of public service rather than financial gain
2.)They are protected, kept unencumbered, cared for, and preserved.
3.)They are subject to an organizational policy that requires proceeds from sales of collection items to be used to acquire other items for collections.

Hence, one of the paintings may have satisfied these conditions, whereas the other did not. For example, the museum may have planned to sell one of the paintings and display the other.