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+--- Thread: Accounting Treatment for Donated Assets (/showthread.php?tid=4467)
Accounting Treatment for Donated Assets - zurpk - 04-28-2007
A Company received an asset as a gift & donation. What will be accounting entry for that asset? Whether Company shall charge yearly depreciation on that asset?
Thanking You.
- kamranACA - 04-30-2007
Dear,
Although not strictly applicable in your situation, still IAS 20 can provide a basic guideline to resolve the issue. IAS 20 pertains to accounting for the government grants.
You can capitalize/account for the asset at its fair value in your books of account by crediting DEFERRED CREDIT account. You will charge depreciation on the said asset as per your accounting policy. Every year, exactly an equal figure (to depreciation expense) would be amortized from DEFFERED CREDIT and accounted for as income in your profit and loss account. This way your depreciation expense would be set off against the amortization income. Balances of the asset and deferred credit both will be reduced every year with equal figures of depreciation charged and amortization booked.
The other solution is to account for the asset in your FIXED ASSETS REGISTER with out any amount as free of cost and do not pass any journal entry.
Third solution is required in those cases where fixed assets registers do not intake the entries without an amount. In this case you can account for the asset at a nominal value of Re. 1 only by crediting your Other Income account. This will help keeping a monitory control over the asset as it will appear in accounting record as well.
However, I recommend the first solution that is based upon the guidelines of IAS 20.
Regards,
Kamran.
- zurpk - 05-02-2007
AOA Mr. Kamran,
This is with reference to your first solution. You have directed that we can capitalize the asset at fair value by crediting deferred credit account. Please let me know about the nature of deferred credit account.
1. Whether deferred credit is our liability?
Please also explain that how I can amortize this deferred credit account at the end of each year? Should I make two separate entries for this purpose? One for depreciation expense by crediting accumulated depreciation and another for amortization by crediting our income?
I shall be thankful for your response.
Thanking You
Zia ur Rahman.
- kamranACA - 05-02-2007
Deferred credit will appear after equity and before non-current liabilities in the balance sheet. However, some people show it after deferred liabilities in non-curret liabilities portion.
You will pass following entries
1. when asset is booked at fair value
.........fixed assets account
....................to deferred credit account
2. when depreciation is charged
.........depreciation account
....................to accumulated depreciation
3. when amortization is charged
.........deferred credit account
....................to amortization income (other income) account
Hope issue stands clarified.
regards,
kamran.
- zurpk - 05-02-2007
AOA
Yes there is no more confusion on the above topic. Thank you very much for your cooperation.