What is the rationale for accounting for (nonexpendable) endowment funds on a full, rather than a modified, accrual basis? Why is it important that depreciation be charged on capital assets held as endowment fund investments?
Accounting for nonexpendable endowment funds is done using a full basis instead of a modified accrual basis because the full basis ensures that the money will not be squandered. The withdrawals from an endowment fund are so numerous depending on the exact intention of the fund that by using the full method of accounting, it provides a more accurate and explicit record to account for every cent of the endowment fund. It allows for clearer and more precise tracking of the fund. If the fund is accounted for using a modified accrual method, there is also a greater chance that due to accounting errors or for other miscellaneous reasons, the distributions from the nonexpendable endowment fund may be erroneously distributed based on the entity's total amount of cash flow and not the total amount of economic earnings. ...
The solution explains the rationale for accounting for (nonexpendable) endowment funds on a full, rather than a modified, accrual basis.