Supposed to gauge impact on IPS of an institution with 150 million deciding to fund a new grant of 15 million. they also anticipate receiving a donation of 1 million. CFAI answer says that they need to adjust their liquidity to account for the 14 million. My question: Why wouldn’t they need to adjust their liquidity for the full 15 million and have the anticipation of the 1 million new donation in their unique circumstances? would this be different if the donation was expected in 1 versus 3 years?
liquidity means the shortfall in near time
right…so if they are just expecting without having anything in writing shouldnt they be concerned about the whole 15 million?
we should know that in foundation or endowment , liquidity = payment - contribution
pulling a donation to a good cause is like killing a kitten. it’s just mean. i think you’re thinking too hard about this. if it’s something coming in soon (i’d say in the next year), cool, adjust down. if it’s years out, then you’re right… keep the 15 mil and you can note in unique that down the line you may get more $$. same goes for the other way around- when you have some expected big medical bill or kid’s college that’s 5 or 10 yrs down the road, you don’t need to be liquid in cash for 5 or 10 yrs in anticipation. from what i’ve seen, liquidity and the reserves typically talk within the next year or so timeframe. yes/no/agree/disagree?
goodman2011 Wrote: ------------------------------------------------------- > we should know that in foundation or endowment , > liquidity = payment - contribution i understand this fully, but there has to be a difference at some point between a contribution and a perhaps/maybe/anticipated contribution, right? i fully agree that i am overthinking this and that on the exam if there was no time frame given for the anticipated contribution id treat it as money good and answer the question as in the eoc.
I am with cook on this…there is uncertainty here… what if, lord forbid, the donor was…oh I don’t know…say was caught cooking the books and needed liquidity for his legal fees…sorry CFAI-- we part our ways here