Permanently Restricted Assets

What are Permanently Restricted Assets

Permanently restricted assets are funds of a nonprofit organization that must be utilized in designated ways and whose principal can't be contacted. The income that the principal amount procures goes toward funding the stated wishes of the donor(s). Donations of such assets are normal, as individuals, gatherings or organizations making the donations might have certain inclinations concerning how the assets gave are utilized by the nonprofit entity.

BREAKING DOWN Permanently Restricted Assets

When accepted, donations are classified as unrestricted, briefly restricted and permanently restricted. These assets are broken down on a nonprofit organization's Statement of Financial Position, which is equivalent to a balance sheet. Generally, the majority of donations to nonprofit organizations are unrestricted, which permits the organization to uninhibitedly use the money as they see fit. Briefly restricted assets accompany surprises — that is, they must be reserved for certain purposes, however just until the expiration of the term stipulated by a contributor.

The third type, permanently restricted assets, are typically connected with an especially large donation, the contributor of which a majority of the time will determine the purpose of the money. The amount will be significant and planned to fund designated areas in perpetuity (i.e., "permanently"). A common type of permanently restricted asset is real estate. For instance, an individual or organization might give a large lump of real estate to a nonprofit entity, like a public university, with the restriction that the property simply be utilized to house logical research labs in perpetuity. The property can never be exchanged by the university for a capital gain.

Permanently Restricted Assets at the Mayo Clinic

The Mayo Clinic, one of the country's chief hospital and medical research institutions situated in Minnesota, characterizes permanently restricted assets as "those for which contributors require the principal of the gifts to be kept up with in perpetuity and give a permanent source of income." In Mayo Clinic's Statement of Financial Position, these assets added up to nearly $1.4 billion, roughly 60% of which was set to the side for research and around 15% for education.