Kindly let us know about the procedure of charging depreciation on fixed assets for NGOs. Usually we show the total purchase cost (including installation charges, if any) of all fixed assets as expenditure on our annual Income & Expenditure Account. A ‘Capital Assets Fund’ has also been shown on the ‘Liabilities’ column of our Balance Sheet, value of which equals to the total value of ‘Fixed Assets’ shown on the ‘Assets’ column of the said Balance Sheet.
- Fixed Assets are not expensed off in I&E Account but capitalized in account books.
- Depreciation rates as prescribed in Income Tax are to be applied for charging depreciation for each year. The Fixed Asset schedule will reflect Gross Block, Depreciation and Net Block financial statements.
- The gross value of asset purchased is reported as an expense only for donor reporting since donors book FA cost paid as expense.
- A Capital Asset Fund is created when a grant is made for acquiring capital/fixed assets and is shown as a liability and corresponding amount on the asset side in Balance Sheet. The depreciation amount on these assets is reduced both from the assets and liabilities side during each financial year.
Hope it clarifies
CS Sharad Bhargava