Items to be considered for checking 85% use condition by aop

This query is : Open

Sushant Mahajan (Querist)
Follow

04 November 2013 While checking the condition of utilization of 85% of income earned by the AOP during the year(u/s 10(23C), which items should be considered to check whether 85% has been used or not?

Should it just be expenses or items like additions to Fixed assets, investments, debtors, addition to bank accounts or addition to cash should also be considered?

What should be done about reduction in bank a/c or cash balances?

Should debtors or advances also be considered?

Please reply.

Nikhil Kaushik

Nikhil Kaushik (Expert)
Follow

04 November 2013 Dear Sushant,

the 85% application is to be counted on the total revenue/donation of the AOP.

Now when you talk about additions to Fixed assets and investments, you would include additions to fixed assets. However, addition to investments need to be seen from the angle whether they are in line with the charitable objectives of the AOP or not.

With regards to debtors, debtors are are nothing but a source from where the AOP earns revenues (in terms of sale). Now, if you are following accrual system, once you have included the sales in your revenue, movement in debtors have to be excluded.

With regards to bank accounts, You need to consider additions in form of donations, and sales or any other incidental income credits.

Debtors and advances should normally not be considered on the similar lines as explained above.

The simple way of calculation is to include all the EXPENDITURE made for charitable purpose. Please not giving advance is not a charitable activity (unless it is covered by the object clause of the AOP). You are taking an indirect approach to arrive at this application figure. Prepare a Receipts and Payments Account. That should guide you.

Message likes : 1 times

Sushant Mahajan

Sushant Mahajan (Querist)
Follow

04 November 2013 One doubt in my mind is there......

if the total balance of cash last year was Rs. 8 lacs but in current year its 6 lacs & in the case of bank a/c balance, last year was Rs. 28 lacs but in current year its 24 lacs...

how would these two things effect the utilization of the income?

Nikhil Kaushik

Nikhil Kaushik (Expert)
Follow

05 November 2013 draw a cash flow statement. Check if there are items which were parked in Corpus donations last years against which expenses were made during the year. By the way, does your entity follow cash basis or accrual ?

Message likes : 1 times

Sushant Mahajan

Sushant Mahajan (Querist)
Follow

05 November 2013 sir

1) there are no such items which were parked in corpus donation.

2) there are two entities: one follows cash basis and the other accrual

3) on the advances: sir one advance is for acquiring a land and other advance is for construction of building.

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now