Gist of Guidance Note on Accounting of CSR Expenditure
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Introduction
- Applicability
- Companies having net worth of Rs. 500 crore or more or,
- Turnover of Rs. 1,000 crore or more or,
- Net profit of Rs. 5 crore or more
- If above mentioned criteria is met during any financial year, then company should spend at least 2% of average net profits of the company made during the 3 immediately preceding financial year on CSR.
- Company must constitute CSR committee and CSR policy must be formulated.
- Any financial year means any of the 3 preceding financial years.
- The objective of this Guidance Note is to provide guidance on recognition, measurement, presentation and disclosure of expenditure on activities relating to corporate social responsibility. GN does not deals with identification of CSR activities.
Recognition and Measurement of CSR Expenditure in Financial Statements
- Provision for any shortfall in the spending on CSR activities not to be recognized. Only disclosure in the Board Report along with reason for not spending needs to be specified.
- However, if liability has been incurred by the company by entering into a contractual obligation, then provision to the extent of such liability needs to be recognized.
- Amount spent in excess of 2% of average net profit of immediately preceding 3 years cannot be carried forward for set off against the CSR expenditure required to be spent in future.
- CSR obligation may be discharged in the following 3 ways:
- Making contribution to the funds as specified in the schedule VII to the Act,
- Through a registered trust or a registered society or a company established under section 8 of the Act,
- In any other way in accordance with the Companies (Corporate Social Responsibility Policy) Rules, 2014, e.g. on its own.
- If contribution made in a) or if amount is spent as per b) above, the same will be treated as an expense and will be charged to profit and loss account.
- Amount spent as per c) above: if expense is of revenue nature, charge it to profit and loss account.
- In case of supply of goods or rendering of services, expenditure will be recognized only when control over goods has been transferred or services have been rendered. (Goods will be valued as per AS-2 and services rendered will be measured at cost. Taxes on goods and services will also form part of CSR expenditure).
- If grant is received for CSR activities, expense will be recognized net of grants.
Recognition of Income Earned from CSR Projects/Programme/Activities
- As per CSR rules, surplus from CSR activities shall not form part of business profit.
- Surplus from CSR activities will be recognized in the statement of profit and loss. But since it cannot form part of business profit, the same will be immediately recognized as “liability for CSR expenditure” in the balance sheet and as a charge to the statement of profit and loss.
- Such surplus will not form part of 2% of the average net profits.
Other points
- Separate line item will be shown in the statement of profit and loss as expenditure on CSR activities.
- Break up of various heads of expenses will be disclosed by the relevant note.
- Note must contain the gross amount required to be spent and amount spent during the year by the company.
Article by CA Vivek Parakh (V Parakh & Associates)
cavivekparakh@yahoo.com, 9623885567, 09582380567
Category : Companies Act | Comments : 0 | Hits : 938
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