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CH 1 Accounting For NGOs
CH 1 Accounting For NGOs
CH 1 Accounting For NGOs
Introduction
Voluntary efforts are an integral part of every economy. In many countries, the governmental
efforts in the area of socio - economic development are supplemented by the activities of many
non-governmental, voluntary and social organisations, which forms an important part of not-for-
profit sector. These organisations play a vital role in bringing the under-privileged to the
common stream of the society. In India, the NGOs operate in varied fields such as health,
poverty reduction, education, spirituality and religion etc. These may be in form of a corporation,
a trust, a cooperative or a foundation.
In the United States, NGOs are typically non-profit organizations. The term is usually applied
only to organizations that pursue wider social aims that have political aspects, but are not openly
political organizations such as political parties.
The number of NGOs operating in the United States is estimated at 1.5 million. Russia has
277,000 NGOs. India is estimated to have had around 3.3 million NGOs in 2009, just over one
NGO per 400 Indians, and many times the number of primary schools and primary health centres
in India.
Meaning / definition of NGO
A non-governmental organization (NGO) is basically a legally constituted organization which is
operated by legal persons who act independently from any government. In those cases where the
NGOs are funded partially or completely by governments, the NGO barred the government
representatives from any membership in the organization in order to sustain its non-
governmental status. The term is used for those organizations which have wider social target
with political aspects. However, any NGO cannot be blatantly political organizations. The term
“non-governmental organization” has no agreed legal definition and these are termed as “civil
society organizations” in many jurisdictions.
Formation of NGO
A Non Governmental Organisation (NGO) is perceived to be an association of persons or a body
of individuals. Such body with a definite name and objective may be a registered one or
unregistered one. Legal character is acquired only after registration (incorporation) of the
association of persons under any of the applicable laws.
An association of persons with non profit motive may be registered under any of the following
Indian Acts:
1. As a Charitable Trust Act
2. As a Society under the Societies Registration Act
3. As a licensed company under section 25 of the Companies Act, 1956
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Types of NGOs
The NGOs can be classified into various types on the basis of different factors like orientation or
level of cooperation.
NGO type by orientation can be grouped into Charitable orientation; Service orientation;
Participatory orientation; and Empowering orientation.
NGO type by level of co-operation can be grouped into Community- Based Organisation;
City Wide Organisation; National NGOs; and International NGOs;
The Non-governmental organizations forms a heterogeneous group and it has a long list of
organization working in different areas with varied scope of work. The alternative terms used in
addition to “NGO” include private voluntary organizations, civil society, independent sector,
self-help organizations, grassroots organizations, volunteer sector, transnational social movement
organizations, and non-state actors (NSA’s).
Criteria for classification of NGOs, for the purpose of the applicability of the Accounting
Standards (Proposed)
Level I Entities:
All NGOs whose annual gross revenue (including grants/subsidies/donations etc.) exceeds 50
Crore in the immediately preceding accounting year, shall fall under this category.
Level II Entities:
All NGOs whose annual gross revenue (including grants/subsidies/donations etc.) exceeds 1
Crore but does not exceed 50 Crore in the immediately preceding accounting year, shall be
considered as the Level II entities.
Level III Entities:
All NGOs whose annual gross revenue (including grants/subsidies/donations etc.) is up to 1
Crore in the immediately preceding accounting year, shall be considered as the Level III entities.
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Following are some of the factors indicating the diversity in accounting practices being followed
by the NGOs:
Existence of unregistered NGOs: Many NGOs in India are small in size and are not
registered under any statute. No authentic information is available about the accounting
practices being followed by these unregistered NGOs.
Lack of awareness on applicability of accounting standards: There is lack of awareness
among NGOs on the benefits of adopting sound accounting practices. There is also a lack
of awareness on applicability of Accounting Standards formulated by the ICAI.
Adoption of different bases of accounting: Current accounting practices in the NGO
sector reveal that bases of accounting other than, ‘Accrual’ are continued to be followed
by many NGOs.
Influence of tax and other laws: The existing accounting practices in the NGO sector are
generally driven by the requirements of the tax and other laws such as Indian Trust Act
(1882), Various State Trusts Acts, Societies Registration Act (1860), Foreign
Contribution (Regulation) Act (1976) rather than with a view to reflect a true and fair
view of the state of affairs and results of the activities carried on by an NGO during the
year.
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organisation will fulfill the conditions attached to it. Thus, a business entity and an NGO would
both follow the aforesaid criteria for recognition of grant as income. Similarly, principles for
recognition of other incomes, expenses, assets and liabilities would be the same for business
entities and NGOs.
(c) Principles of measurement of items of income, expenses, assets and liabilities
These principles lay down at what amount the aforesaid items should be recognized in the
financial statements. Ordinarily, the same principles of measurement would be applicable in case
of NGOs as those for business entities.
(d) Presentation and disclosure principles
These principles lay down the manner in which the financial statements are to be presented by
NGOs and the disclosures to be made therein. Insofar as presentation of financial statements is
concerned, NGOs generally follow what is known as ‘fund based accounting’ whereas the
business entities do not follow this system. This is because NGOs may be funded by numerous
grants, donations or similar contributions, which may or may not impose conditions on their
usage. In other words, the use of some funds may be restricted by an outside agency such as a
donor or self-imposed by the organisation. It, therefore, follows that the financial statements of
NGOs should reflect income, expenses, assets and liabilities in respect of such funds separately
so as to enable the users of financial statements such as the contributors, to assess the usage of
the funds contributed by them. However, it may be noted that fund based accounting is relevant
primarily for the purpose of presentation of financial statements and not for the purpose of
identification, recognition and measurement of various items of income, expenses, assets and
liabilities.
It may be concluded from the above paragraphs that while the identification, recognition and
measurement of elements of financial statements are sector neutral, the presentation of financial
statements may differ among the two sectors, viz., for-profit sector and not-for-profit sector.
Similarly, disclosure principles may also differ. The accounting framework discussed above
would apply to all categories and types of NGOs. However, the books of account to be
maintained by various NGOs may depend upon the nature of activities and/or programmes
carried on by them.
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Format of Balance Sheet and Revenue and Expenditure Account for NGO
Name of Entity ____________________________________
BALANCE SHEET AS AT _________________________________________
(`……………)
SOURCES OF FUNDS (Liabilities Side) Schedule Current Year Previous Year
UNRESTRICTED FUNDS
Corpus Fund 1
General Fund
General Funds in the nature of founders’/ promoters’ 2
contribution
Funds related to non-depreciable assets not requiring 3
fulfillment of any obligation
Designated Funds 4
RESTRICTED FUNDS 5
LOANS/BORROWINGS
6
Secured
Unsecured
7
CURRENT LIABILITIES & PROVISIONS
TOTAL
APPLICATION OF FUNDS (Assets Side)
FIXEDASSETS
8
Tangible Assets
Intangible Assets
Capital Work-In-Progress
INVESTMENTS 9
Long Term
Short-term
CURRENT ASSETS 10
LOANS,ADVANCES & DEPOSITS 11
TOTAL
Significant Accounting Policies 21
Notes on Accounts 22
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Name of Entity ______________________________________
INCOME AND EXPENDITURE ACCOUNT FOR THE PERIOD/YEAR ENDED___________________________
(`……………)
INCOME Schedule Current Year Previous
Year
Unrestricted Funds Restricted Total Total
General Designated Fund
fund fund
TOTAL (A)
EXPENDITURE
Materials consumed 16
Employee Benefit Expenses 17
Administrative and General Expenses 18
Finance costs 19
Depreciation & Amortisation Expenses
Other Expenses 20
TOTAL (B)
Balance being excess of Income over Expenditure (A-B)
Transfer to/from Designated fund
Building fund
Others (specify)
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SCHEDULES FORMING PART OF BALANCE SHEET AS AT ………………
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Additions during the year
Deductions during the year
Balance at the end of the year
c) Funds received from the Central/State Governments are to be shown as separate funds and not to
be mixed up with any other funds.
d) Disclosures shall be made under relevant heads based on conditions /restrictions attached to the
grants.
e) Assets, such as investments, and liabilities related to each designated fund shall be disclosed
separately.
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Buildings Include office and other buildings, residential buildings, school and college buildings,
hospital buildings, public buildings, temporary structures and sheds.
Plant and machinery Include air conditioners, generator sets, television sets, fire extinguishers, etc.
Vehicles Include buses, lorries, vans, cars, scooters, etc.
Office equipments Include such items as fax machines, photocopiers, EPABX, typewriters,
duplicating machines, etc.
Computers/Peripherals include computers, printers and other peripherals like CDs, U.P.S &
Software etc.
Furniture fixtures and fittings, and electrical appliances
Furniture includes items such as cabinets, almirahs, tables, chairs and partitions. It also includes
electrical fixtures and fittings such as fans, bulbs and tube lights and electrical appliances such as air
conditioners, water and air coolers, etc.
Library Books
In some cases the number of Library Books could be very large or there may be an established
Library. In such cases these books may be disclosed as a separate category of assets. Library books
will include books/journals/information stored in CD ROMs
Tube wells & water supply system
Tubewells and Water Supply Systems ma y be shown as a distinct category.
Intangible assets
Shall be classified as computer software purchased, goodwill, patents, trademarks etc and shall be
specified separately.
Capital Work-In-Progress
Fixed assets in the course of construction should be shown against this head till they are ready for
their intended use.
Plant, machinery and equipment acquired and pending installation should be included here. Advances
to suppliers/contractors on capital account should also be included.
a) Fixed assets are those assets which are held with the intention of being used for the purpose of
producing or providing services and not held for sale in the normal course.
b) Under each head, the original cost, the additions thereto and deductions therefrom during the year,
depreciation written off or provided during the year, and the total depreciation written off or provided
up to the end of the year should be stated.
c) The cost of a fixed asset should be determined by adding to the purchase price any attributable
costs of bringing it to its working condition for its intended use.
d) The cost of construction of a fixed asset should be determined by adding to the purchase price of
the materials and consumables used, the costs incurred by the NGO which are attributable to the
construction of that asset.
e) Advance payments to contractors and suppliers should not be classified under the specific fixed
assets but disclosed as a separate item.
f) Separate disclosure under each of the above heads should be made in respect of donated assets (i.e.,
assets that have been received free of cost as non- monetary grant/donation by the NGO) and assets
financed under a lease agreement.
g) Fair values of all the donated fixed assets, existing on the Balance Sheet date, should be disclosed
in the notes to accounts. If it is not practicable to determine the fair values of the assets on each
balance sheet date, then such values may be determined after a suitable interval, say, every three
years. In such a case, date of determination of fair values should also be disclosed along with the fair
values of assets.
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h) Restrictions, if any, on the utilisation of each asset should also be disclosed in the notes to
accounts.
SCHEDULE 9 – INVESTMENTS
a) The investments shall be classified and disclosed under long term investments and current
investments.
b) ‘Current Investment’ means an investment that is by its nature readily realizable and is intended to
be held for not more than one year from the date on which such investment is made.
c) ‘Long-term Investment’ means an investment other than a current investment.
d) Both ‘Long-term Investment’ & ‘Current Investment’ shall be classified and disclosed as follows:
Investment made in Government Securities
Other approved Securities
Others (to specified)
e) Investments shall further be sub -classified as investments from endowment / earmarked funds and
other investments in each case and disclosure accordingly.
f) Long-term investments should be measured at cost. The book value of long-term investments
should be reduced to recognise a decline, other than temporary, in their value. Such reduction should
be determined and made for each investment individually.
g) Aggregate amount of the NGO’s long-term quoted investments and also the market value thereof
should be shown. Aggregate amount of the NGO’s unquoted investments should also be shown.
h) Quoted investment’ for this purpose, means an investment in respect of which a quotation or
permission to deal on a recognised stock exchange has been granted, and the expression ‘unquoted
investment’ should be construed accordingly.
i) Current investments should be shown at the lower of cost and fair value, which should be
determined either on an individual investment basis or by category of investment.
j) The significant restrictions on the right of ownership, realisability of investment shall be disclosed
by way of notes.
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5. Other current assets should be classified and disclosed.
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b) In case the fees like entrance fee, subscriptions etc. are in the nature of capital receipts, such
amount should be recognised to the Corpus Fund. Otherwise such fees will be incorporated in this
schedule.
c) In case the major activities of the entity are to organise seminar/workshop and/or provide services,
such income should form part of the Schedule 12.
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SCHEDULE 18 – ADMINISTRAIVE AND GENERAL EXPENSES/OFFICE EXP.
a) These shall be classified and disclosed as follows:
1. Rents, rates and taxes
2. Communication expenses
3. Printing & stationery
4. Electricity
5. Travelling & conveyance expenses
6. Insurance charges
7. Remuneration to auditors
8. Professional Charges
9. Others (specify)
10. Repair & Maintenance of Building, Furniture & Fixture, Plant & Machinery etc.
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Example – 1: From the following information available of Acharya Chankya Rashtra Seva Sangh for the year
ended 31/03/2018, prepare Balance sheet and Income and Expenditure statement. While preparing income
and expenditure a/c, show the income of general fund, designated fund and restricted fund separately.
Rs. In Lacs
Particulars Rs Particulars Rs
Opening stock of Material 5 Insurance Charges 40
Purchase of Material during the year 3 Seminar Fees-Restricted 700
Employees Retirement
Bank charges 15 Benefits 85
Interest on fixed loans 21 Professional Charges 175
Repairs & Maintenance of Building 36 Consultancy fee-General 560
Annual Fees/Subscriptions -
Salaries and Wages 212 General 450
Donations from Institutional Body -
General 210
Grants from State Government- Interest accrued but not due
Designated 300 on borrowings 45
Donations from Central Government-
Restricted 180 Land 2280
Repairs & Maintenance of Furniture 8 Building 3315
Remuneration to Auditors 2 Furniture 212
Allowances and Bonus 80 Expenses Payable 60
Contribution of Promoters :- Income from Operations :-
Opening Balance 1240 General Fund 1100
Additions 160 Restricted Funds 870
Other Approved securities 1200 Designated Funds 1500
Investment in Government Securities 1375 Creditors for Services 130
Receivable 850 Loans/Borrowings from :
Cash and Cash equivalent 810 Central Government 2000
Bank balance with banks 550 State Government 750
Available Restricted fund 992 Capital work-in-progress 2029
Loans and Advances 1814 Other Income - Restricted 1270
Available Designated Fund 1400 Available General fund 1200
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Example 2: Prantik Development Trust has made available the following information for the year ended
31st December 2020:
Particulars Rs. (in lakh) Particulars Rs.(in lakh)
Income from services 250 Corpus fund 600
General funds in nature of
Other income 35 founders' contribution 100
Entrance fees 15 Grants related to Freehold land 50
Annual subscription 130 Earmarked fund 20
Additional information
1. Transfer 10% of income to Designated fund
2. Subscription fees received in advance Rs. 50 lakh for 2021.
You are required to prepare Income and Expenditure A/c for the year ended 31st December 2020 and
Balance Sheet as on that date.
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