Calculating net assets released from restrictions involves determining the portion of previously restricted assets that become unrestricted, thus increasing an organization’s available financial resources. For instance, a non-profit organization may receive a grant with restrictions on its use for specific projects. Once those projects are completed, the grant funds become unrestricted, increasing the organization’s net assets.
This calculation plays a vital role in financial reporting and analysis. It enhances understanding of an organization’s financial health, enables stakeholders to assess its ability to meet obligations, and aids in decision-making. Historically, the concept gained prominence with the adoption of Statement of Financial Accounting Standards No. 117 in the 1990s, formalizing the accounting treatment of net assets released from restrictions.