Tag Archive for: Fixed Assets Register

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How to remove GHOST FIXED ASSETS – Fixed Assets Management in the NGO

Scenario

30 computers were purchased out of funding agency fund during 5 years of projects. Now in the current date, almost every computer is not usable. How do you remove these assets from the  Balance Sheet? This is very important query asked by participants every time I take Training on Accounting and Financial Management of NGO.

As we know NGO is a special type of Entity and rules and regulations governing them are not very clear. Also, there are no accounting standards issued by ICAI specifically related to NGO covering each and every aspect. All these make more confusions. (Why it is very important to clean your Balance Sheet – Read Here).

Let us discuss today how to remove ghost assets from the Balance Sheet.

When Assets should be removed?

Fixed Assets can be removed in the following cases :

  1. if Fixed Assets are not in use
  2. if maintenance expenses are very high
  3. due to change in technology requirements
  4. if Funding Agency instructed to return it back or transfer to another partner

Procedure to remove Fixed Assets

Before that, we need to know the source from which it is acquired. Fixed Assets are generally acquired by NGO in two ways.

1) From Restricted Funds. (Funding Agency Budget etc…)

2) From Unrestricted Funds. (Corpus, General Donation, Interest etc..)

Step 1 Identification

Before 31st March every year, a committee should be formed comprise of Accountant and other two people who then take the stock of Assets and decide which can be scraped or removed or discarded.

Step 2 Approval

On their recommendation, Head of the organisation decides whether to go ahead and remove fixed assets or not. In case of assets acquired from the Funding Agency Fund, written approval must be obtained from the Funding Agency.

Step 3 Passing Resolution

It is highly advisable to put an agenda in the General Meeting regarding removal/scrape/sale of fixed assets. Once approved, a resolution to remove Fixed Assets should be passed in the board/general meeting.

Step 4 Accounting Entries

After passing the resolution, an accountant should pass appropriate journal entry in the books of accounts for removal/scrape/sale of fixed assets recognizing profit or loss if any. Journal entries depend upon how it was recorded originally and depends upon many aspects – whether Fixed Assets Fund created or not? – whether depreciation provided or not? – whether assets are maintained as a Block or Individual items etc…

If your accountant is not capable of passing such entries, email your query at contact@kcjmngo.com or write it in the comment section.

Conclusion

At any point in time, the Balance Sheet should reflect the correct pictures of the economic position of your organization. And Fixed Assets are one of such crucial items in the Balance Sheet. Thus, utmost care should be taken to identify and removal of Fixed Assets.  Also, special attention should be given to such fixed assets purchased from FC funds and how journal entries passed in the book and reflected in the FCRA Returns.

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Year-end 5 points to consider for NGO

As 31st March approaching near, books of accounts has to be reviewed. In this post, we try to answer following questions. Why one has to review its books of accounts get closed? In NGO, who has to review accounts? And Which are main five points to look into while reviewing accounts before 31st March?

Reason for year-end review

Precaution is better than Cure

After year end, any changes to books of accounts may lead to look like postmortem. Accounting is an ongoing activity and whenever books of accounts get changed back dated, auditor can easily smell it.

Responsibility of year-end review

Is it whole and sole responsibility of Accountant? NO. I would rather suggest that, Project Coordinator has also to look into the specific areas, like all the activities, which has to be completed before 31st March, must reflect in the books of accounts. Thus its a joint work of Accountant-Project Coordinator and Top Management.

5 Points one should look

1. Negative Cash

Go to Cash Book maintain in the accounting software and get daily balance. Even a single day negative cash balance cause you trouble. There are many reasons for cash going negative on particular day and also number of ways to solve it. Though there are many ways to solve it, once books of accounts get close and audit is started, it is difficult to rectify.

2. Advance Grant

Check, grant received in advance for programs after 31st March is not taken as current year income, specially when project period is not in consistent with our financial year. Suppose Project Period is from 1/7/2013 to 30/06/2014 and full grant already received before 31/03/2014, then amount equals to estimated expenditure from 1/4/2014 to 30/06/2014 transfer to next year as advance grant. See below image showing extract of Income and Expenditure account :

advance grant

3. Completed Projects

Projects, which are completed during current year, has to look for any over expenditure or savings of funds even of smaller amounts. It is not possible that every total amount spent is exactly same as grant received for particular project. Sometime, there is over expenditure of smaller amount or savings from project. There may be contribution from communities or contribution of NGO. All these transactions are properly accounted for before 31st March.

4. Fixed Assets

In many of NGOs, it it never ending problem, that Fixed Assets mentioned in Audited Report is not matched with Physical Fixed Assets. Though every NGO maintains Fixed Assets registers, they do not have habit of review it before year-end. At the year-end Fixed Assets in physical form, Fixed Assets mentioned in Books of Accounts and Fixed Assets Register must be tallied.

5. Fund Balance

This is most important point. It is best practice that fund balance in books of accounts at any point of time is to be matched with cash and bank balance. For this before year-end, a receipt and payment accounts is to be prepared showing Opening Balance of Cash and Bank, receipts during the year, spent during the year and closing cash and bank balance.

There may me many other points according to situations and scope of your NGO. However above points are crucial to look into before financial year ends.

 

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