30 July 2013
A public trust has received donations with specific directions i.e to purchase gym equipments.Donations received are credited to a seperate a/c,i.e eqpmnt fund u/h other earmarked funds.The said amount is also utilised for the purchase of gym eqpmnts. I just want to confirm whether the income arising from this invstmnt,i.e,gym fees will be credited to the fund or it will be shown as income in the income & expenditure a/c.
30 July 2013
Here there are two aspects of your question
1) The donation received by you for the purpose of the Gym is taxable or not. If you treat this as general donation then it is but if you treat this as corpus of the trust then it is not taxable.
2) Regular income from the investment is your activities but now it is to be considered whether this is in the nature of charity or commercial activities. This cannot be treated as charity as you are collecting money for uses and therefore, it is not exempted income.
31 July 2013
Thank you, sir...Thanks a lot. There's one more thing to ask,i.e,under what head will be the Gym Equipments shown in the balance sheet format of a public trust.I suppose there is only one head,i.e,Furniture & Fixtures. Will it be right doing this and at what rate depreciation will be allowed? are the rates same as that we use in Income tax.Please guide on this matter.
10 August 2024
For a public trust managing specific earmarked funds, such as for purchasing gym equipment, here’s how to handle the financial accounting and reporting:
### **1. Accounting for Donations and Income**
- **Donations with Specific Directions:** When a public trust receives donations with specific instructions, like for purchasing gym equipment, the donations are credited to a separate account, such as an "Equipment Fund" under "Other Earmarked Funds." This approach ensures that the funds are segregated and used solely for the intended purpose.
- **Utilization of Funds:** Once the funds are utilized for purchasing gym equipment, the expenditure should be debited to the Equipment Fund account. This maintains the transparency of how the earmarked funds are used.
- **Income from Investments (e.g., Gym Fees):** - **Crediting Income:** The income arising from the gym operations, such as gym fees, should typically be shown as income in the Income & Expenditure Account of the trust. This income is not typically credited to the earmarked fund because it represents operational revenue rather than a donation.
- **Fund Utilization:** The income generated can be used for the trust's activities and should be reflected in the Income & Expenditure Account to show the operational performance of the trust.
### **2. Treatment of Gym Equipment in the Balance Sheet**
- **Balance Sheet Classification:** In the balance sheet, gym equipment should be classified under "Fixed Assets." While "Furniture & Fixtures" is a common heading, it’s more appropriate to create a specific sub-category under Fixed Assets such as "Gym Equipment" or "Fitness Equipment" to provide clarity and better classification.
- **Depreciation:** - **Depreciation Rate:** The depreciation on gym equipment should follow the rates specified in the Income Tax Act for accounting purposes. Typically, the depreciation rates for equipment like gym equipment are similar to those for other fixed assets under the Income Tax Act. For gym equipment, the rates usually fall under the category of "Plant & Machinery" or similar classifications, and you can follow the standard depreciation rates applicable to such assets.
- **Depreciation Calculation:** - **Income Tax Act Rates:** As per the Income Tax Act, the depreciation rate for "Plant & Machinery" (which may include gym equipment) is generally around 15% on a Written Down Value (WDV) basis. Ensure that the depreciation rate used aligns with the current applicable rates in the Income Tax Act and that it is consistent in the financial statements.
### **Summary**
1. **Income from Gym Operations:** - Should be recorded in the Income & Expenditure Account of the trust. - It represents the operational income rather than a donation.
2. **Gym Equipment in Balance Sheet:** - Should be shown under "Fixed Assets" with a specific heading like "Gym Equipment." - Depreciation should be calculated as per the rates prescribed under the Income Tax Act, typically around 15% for plant and machinery, which includes gym equipment.
By following these guidelines, you ensure that the public trust's financial statements accurately reflect the utilization of funds and the management of assets.
CAclubindia
