Treatment of Donations received for purchase of assets in an NPO, section 8 Company having 80G & 12A

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This discussion addresses the accounting treatment for donations received by Section 8 NPOs (with 80G & 12A registration) specifically for asset purchases. The core question is how to record the asset acquisition and subsequent depreciation. Experts suggest treating these donations as normal donations and the asset purchase as an application of funds, while charging depreciation. It's clarified that the entire amount spent on capital assets can be considered an application of funds for charitable trust accounting, though depreciation might not be deductible for income tax purposes.

komal ameta

komal ameta (Querist)
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22 July 2022 Dear Experts,

1. Please give advice on how can we account for Donations received for the purchase of assets in an NPO, Section 8 Company having 80G & 12 A Registration.

How will be the purchase of the asset & depreciation on the asset accounted for in the books?

2. Can we treat these donations as we treat Govt. Grant as per AS 12?

for eg - ABC Ltd. Purchases machinery for Rs. 30 lakhs with a useful life of 5 years and ‘Nil’ salvage value. It gets Rs. 10 lakhs as a grant from the government for this machinery.

a) The Gross value of machinery will be shown as Rs. 30 lakhs on the balance sheet along with Rs. 10 lakhs as ‘Deferred Government Grant’.

b) Rs. 6 lakhs (30 lakhs / Useful life i.e. 5 years) will be charged to the profit and loss account each year as a depreciation along with an income of Rs. 2 lakhs (10 lakhs / Useful life i.e. 5 years).

Please guide me as per regulations applied on an NPO, which is a section 8 company having 12A, 80G registrations.

Your time & guidance is invaluable to me.
Regards,
Komal

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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22 July 2022 Account it as normal donation and purchase of assets as application of funds.
Charge applicable depreciation in the books of accounts.
Depreciation will not be counted for income tax working.

komal ameta

komal ameta (Querist)
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22 July 2022 Dear Expert, If we account for it as a normal donation, our non-profit income will increase, Asset is a nature of capital expenditure.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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22 July 2022 You don't know charitable trust accounting.
Entire amount spent on capital assets will be allowed as dedication as application of funds.

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