12 May 2016
Hi all
A clarification is reqd for donation.
What WL b treatment of donation for CSR activity as per c act 2013 for cost plus markup revenue model company.
Does it need to b shown as expense in P/L or reduced from R/S as part of approx.
Reply is appreciated. Also if extract of act can b knwn.
12 May 2016
Thanks for update.
Yes we have a separate ledger for CSR expense too which is included in billing but donation we r not billing but only shwing in P/L for presentation.
plz let me knw how cost plus co.s present donation in its financials. eg of co.s willb preferred
10 August 2024
In the context of the Companies Act, 2013, and its treatment of donations, especially concerning CSR (Corporate Social Responsibility) activities, the treatment and presentation of donations in the financial statements are specific and should align with the regulatory framework.
### **Treatment of Donations under the Companies Act, 2013**
#### **1. CSR Donations under the Companies Act, 2013**
- **CSR Expenditure Requirements:** - **Section 135 of the Companies Act, 2013:** This section mandates certain companies to spend at least 2% of their average net profits of the last three financial years on CSR activities. - **CSR Rules:** Under the Companies (Corporate Social Responsibility Policy) Rules, 2014, companies are required to follow a CSR policy and spend on activities listed in Schedule VII of the Act.
#### **2. Presentation of CSR Donations in Financial Statements**
- **Financial Statements Presentation:** - **Profit and Loss Account:** CSR expenditure should be shown as an expense in the Profit and Loss Account (P&L). This is in line with the accounting standards that require CSR expenditure to be recognized as an expense, not as a reduction in revenue or as a direct deduction from the reserves. - **Disclosure Requirements:** - **Schedule III of the Companies Act, 2013:** Requires disclosure of CSR activities in the financial statements. This should include the amount spent on CSR activities, the nature of the activities, and the entities receiving the contributions.
- **Cost-Plus Model:** - **Revenue Recognition:** In a cost-plus markup revenue model, donations or CSR expenditures should still be accounted for as expenses in the P&L. They should not be set off against revenue or treated as a reduction from reserves. - **Separate Ledger:** Having a separate ledger for CSR expenses is a good practice, and it should be included in the total expenses for the year in the P&L.
#### **Example of Presentation:**
**Profit and Loss Account (Illustrative):**
``` Revenue from Operations XX,XXX,XXX Other Income X,XXX,XXX Total Revenue X,XXX,XXX
Expenses: - Cost of Materials X,XXX,XXX - Employee Benefits Expense X,XXX,XXX - CSR Expenses (donations) X,XXX,XXX - Other Expenses X,XXX,XXX
Total Expenses X,XXX,XXX
Profit Before Tax X,XXX,XXX Tax Expense X,XXX,XXX
Profit After Tax X,XXX,XXX ```
**Notes to Accounts (CSR Disclosure):**
``` **Note X: Corporate Social Responsibility (CSR) Expenditure** As per Section 135 of the Companies Act, 2013, the Company has incurred an amount of ₹X,XXX,XXX towards CSR activities during the financial year ended [Date]. This amount is included in the CSR expenses shown in the Profit and Loss Account. The CSR expenditure primarily includes donations to [specify entities or causes]. ```
### **Relevant Extracts from the Companies Act, 2013:**
- **Section 135(5):** - "The Board of every company referred to in subsection (1) shall ensure that the company spends, in every financial year, at least 2% of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its CSR policy."
- **Rule 4 of the Companies (Corporate Social Responsibility Policy) Rules, 2014:** - "CSR expenditure shall include all expenditure, direct or indirect, incurred by the company on CSR activities undertaken in accordance with its CSR policy."
### **Conclusion:**
For a company following a cost-plus markup revenue model, donations or CSR expenditures should be shown as an expense in the Profit and Loss Account. They should not be set off against revenue or treated as reductions from reserves. Proper disclosure in the financial statements is required to meet compliance with the Companies Act, 2013.
Maintaining a separate ledger for CSR expenses and accurately reflecting them in the financial statements helps in proper reporting and compliance with legal requirements.
CAclubindia
