Tag Archive for: Ghost Fixed Assets

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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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Cleanup of NGO Balance Sheet before 31st March

BEFORE year ends on 31st March, NGO has to look out some points regarding its books of accounts.   An NGO has to prepare an Income & Expenditure Account, Balance Sheet and Receipts and Payments Account. In case of Income Expenditure Account and Receipts Payments Account, only current  year figures are taken and thus no cleaning process required for it.

However in case of NGO Balance Sheet, figures and items are carried forwarded from year to year. In many of the accounts, only opening balances are  carried down from years without having any transactions, and thus every year it is the duty of NGO Accountant to look at the Balance Sheet before 31st March, list out such types of dormant accounts and pass necessary journal entries to remove it, only after taking approval from higher designated person of the NGO.

Dormant Accounts in NGO Balance Sheet

Mostly Fund Accounts with very nominal balance, mostly in Unutilized Grants or Grants Receivables may be consider as dormant. If project was completed before 2 to 3 years back and if there is nominal balance either positive or negative, should be transfer to General fund.

Unused Bank Accounts

Because of emphasis of Government funded projects to open a Separate Bank Account for Project, it may be seen that in an NGO, more than 5 to 10 Bank Accounts are opened. As such, there is no limitation on Maximum number of Bank Accounts, it should be restricted for administrative smoothness. Secondly, some charges are debited every year even we do not use Bank Accounts. To avoid all such, it is lookout of accountant to identified such unused bank accounts and start procedure of closing it.

“Ghost” Fixed Assets

Some of the Fixed Assets in NGO are on paper but you could not find it physically. I say them “Ghost” Fixed Assets. All these type of “Ghost” Fixed Assets should be removed even from paper by passing resolution and journal entries.

TDS Receivable (Income Tax Refund Accounts)

TDS of NGO is deducted from consultancy, or on Interest on Fixed assets and such other types of Income. This TDS is claimed as refund in Income Tax Return of NGO. However due to slow process of Income Tax Department in issue of refund. These “TDS Receivable” Accounts are carried forwarded from years. Sometimes, refund is already deposited in bank account but not properly accounted for. Go to this link of Refund Status Website to check how much refund is pending and only those related refund accounts should reflect in the NGO Balance Sheet

Summary

NGO Balance Sheet is a financial mirror of any organization and thus it must be clean periodically, else the picture reflects, will not look transparent.

Hope this will help you in your NGO, if you have any question,  you can ask here or chat with us. Also your comments are welcome on the above subjects.

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