How should a charity account for its branches?
Answer / guest
The trustees must ascertain the legal status of their local
units: Any 'branch' that fulfils the requirements to
register as a separate charity (ie it is autonomous, has
income over ?1,000 or has a permanent endowment or the
exclusive use/occupation of land), must be separately
registered. As a separate charity, it would normally have
its own accounts and trustees' annual report (but see
uniting directions question). If the branch is not a
separate charity then its funds will be included with those
of the main charity as follows: Funds raised by a branch
for the general purposes of the main charity will be
accounted for as unrestricted funds. Funds raised by a
branch for specific purposes of the main charity (including
for use solely in the branch) will need to be accounted for
as restricted funds. This is a complex area.
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Two charities are setting up a joint fund raising operation. How do you account for this?
Occasionally it is said that issuing convertible bonds is better than issuing stock when the firms shares are undervalued. Suppose that the financial manager of Decent Furniture Company does in fact have inside information indicating that the decent stock price is too low. Decent furniture earnings will in fact be higher than investor’s expectations. Suppose further that the inside information cannot be released without giving away a valuable competitive secret. Clearly, selling shares at the present low price would harm Decent’s existing shareholders. Will they also lose if convertible bonds are issued? If they do lose in this case, is the loss more or less than it would be if common stock is issued? Now suppose that investors forecast earnings accurately, but still under value the stock because they overestimate Decent’s actual business risk. Does this change your answer to the questions posed in the preceding paragraph? Explain.
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