Accounting for fixed asset received as donation

THE ASSET SHOULD BE SHOWN IN THE BALANCE SHEET AT NOMINAL VALUE THAT IS COST LESS DONATION RECEIVED

Dear Abhishek and Rahul

As per my knowledge fixed assets received in donation should be capitalised at Fair Market Value and the credit effect of same should go either to corpus (capital) or income depending on the terms of donation.

Can it be depreciated ?

no asset will not be depreciated

The fixed asset so received has to be taken on Fair Value Basis and credit should go to capital or income as the case may be.

Further if we  compare this with AS 12/ IAS 20 Government Grants then the following can be applied:

You can capitalise/ account for the asset at its fair value by crediting Deferred Credit Account. The depreciation on the said asset can be charged based on the accounting palicy being adopted by the company. So every year an equal amount would be amortised from deferred credit and accounted for as income in yuor profit and loss a/c. This way depreciation expenses will be set off against the amortised income. Also balance of both the fixed asset and deferred credit will be reduced every year with equal figures.

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HiiiiiiAbhishek

As per AS-12,Govt Grants, the asset recd in donation will be shown at nominal value in the balance sheet.

we can consider it at FV and this asset will not be depreciated.

Hi,

I am previously working in one NGO. We are received high amt of donations in kind i.e. iron for construction.

In that case we make entry as:

Fixed Assets A/c…………….Dr.  

                To Donations A/c

That means we capitalized the fixed assets. Therefore we claimed for depreciation.

AS 12 is meant for commercial, profit-earning enterprises, and therefore, cannot be made applicable to NPO without modification. Donations could be in cash or in kind and it should make no difference to an NPO if it is one or the other as far as accounting goes. Cost of donated asset to an NPO is the cost of such asset in the market, except that such asset is funded by a grant or donation and it is imperative to NPO to account for such grant as a grant in kind and the related asset as an asset. If a cash donation of, say, Rs.10 lakhs is given to an NPO for purchase of a building, the donation will be accounted for as donation and building purchased out of the said donation will be accounted for as building. If instead of cash donation, the donor buys a Rs.10 lakhs worth building and gives it free of cost to NPO, it will be accounted for at nominal value, say Re.1, if recommendation of technical guide is to be followed. This apparently is not what is intended.

Further, provisions of Bombay Public Trusts Act, 1950 read with Bombay Public Trusts Rules, 1951 also leave no option to an NPO in Maharashtra and Gujarat, but to account for both donations in cash or in kind at their correct/current value. The provisions of the Act as applicable to Maharashtra/Gujarat, prescribe disclosure of donations in kind, in the accounts. The forms of accounts vide Rule 17(1) specifically provide for separate disclosure of such donations. Contributions payable to the Charity Commissioner, as provided in the BPT, Act, 1950 u/s.58 and Rule 32 of the BPT Rules, 1951 do not exempt donations in kind and consequently, valuation of such assets at Re.1/- may be seen as under valuation for the purpose of avoiding BPT levy. There are, however, exemptions in case of Govt. grants and grants from other NPOs that can be availed to avoid the impact of BPT levy.

In case of project-specific assets purchased out of grants given for execution of a specific project as stated in (iv) above, the value of the asset will be an expenditure for the project during the duration of the project and thereafter, it may become NPO’s asset or a community asset to be handed over to the beneficiaries of grant for future use or it may revert back to the sponsor of the project, as per the condition of the grant. In case the asset becomes community asset for future use of beneficiaries or reverts back to the sponsor, the question of accounting it in NPO’s books does not arise after the expenses are charged off as project expenses. In case the asset becomes part of NPO’s assets on completion of project, it is necessary to ascertain whether the said asset is useful to the NPO in its day-to-day operations and if so, what is its current value to be considered for accounting in the books. If the asset is not useful to the NPO, but the same is valuable, it may be recorded in the books at Re.1 and if on the other hand the asset is useful to the NPO, the same could be recorded on a technical evaluation and brought to books as addition of that year. Impliedly, this also could be considered as a non-monetary grant received free of cost in the year of completion of the project as per recommendation in AS 10, but due to reasons explained earlier, valuation at its current value would be more correct and proper

No offense to other replies

Mr. Abhishek

Please note that AS 12 is not applicable on such an asset as AS 12 is applicable only on government grants

Further asset should be recorded at a nominal value (historical cost is absent)

Also depreciation on the same will be an option for the entity.

But i depreciation on a nominal value will be useless.

For reference please consider the below link.

https://finance.dir.groups.yahoo.com/group/ICAI_CIRC_MEERUT_CA/message/65452

Query

How can i classify, the donation received in kind as corpus donation or general donation?. 

NGO received a new school-bus as donation.

1. The bus was shown in the books of accounts (as Fixed Asset) at the cost of expenditure incurred on it to make it fit for use. (Fixing Speed Limiter and some Insurance Documentation, etc) This amount is about 35000.

2. And, the Bus is also being depreciated.

Any coment on that?

As per new inserted sub section 6 in section 11 w.e.f. 1-4-2015, (A.Y. 2015-16 onwards) the Depreciation is not allowed as a deduction on the asset which is claimed, any time, as application of income.

If the donation is received as an asset, it is alreay applied towards the asset.

Asset A/c ...dr

To donation income (revenueor corpus as per instructions)

Ref: Section 11(6)

Whether I can claim depreciation if the asset is taken as corpus donation as corpus will not be regarded as application.

Corpus donations refer to the donations made by a donor to a trust with a specific direction that they shall form part of the corpus of the recipient trust. The donor alone can give a specific direction that the donation made by him shall form part of the corpus of the trust. Trustees have no power to treat in their discretion any donation as corpus donation. Such direction may preferably be given by the donor in writing by a letter addressed to the trust. If he has not done so, trustees may request him to give such directions in writing.

Donation in kind cannot be said to be funds of the trust as contemplated by Section 13(1)(d)(i), though they generally form part of the assets of the trust constituting its corpus. In order to claim exemption under Section 11, it is not incumbent on the part of the recipient trust to dispose of donations in kind, convert the same into cash and invest the proceeds thereof into permissible forms or modes, since that would amount to destroying trusts holdings properties, movable or immovable, as their corpus. –Auditor Dasaradha Rami Reddy Charities v CIT (1989)177 ITR 249 (Mad)

Depreciation on asset as corpus donation should be allowed.

Pl see: https://www.wirc-icai.org/material/Note_on_Income_tax_provisions_of_TRUST.pdf