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    Guidance Note On CSR Expenditure (My Notes)

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    maulesh bhatt
    This document provides guidance on accounting for corporate social responsibility (CSR) expenditures under the Companies Act of 2013. It outlines that companies meeting certain criteria must spend at least 2% of their average net profits on CSR activities. It also discusses how CSR expenditures should be recognized and measured depending on whether funds are contributed, spent via a trust/NGO, or spent directly by the company. Expenditures of a revenue nature are expensed, while asset-creating expenditures are recognized only if the company retains control and future benefits from the asset.

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    Guidance Note On CSR Expenditure (My Notes)

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    maulesh bhatt
    101 views2 pages
    This document provides guidance on accounting for corporate social responsibility (CSR) expenditures under the Companies Act of 2013. It outlines that companies meeting certain criteria must spend at least 2% of their average net profits on CSR activities. It also discusses how CSR expenditures should be recognized and measured depending on whether funds are contributed, spent via a trust/NGO, or spent directly by the company. Expenditures of a revenue nature are expensed, while asset-creating expenditures are recognized only if the company retains control and future benefits from the asset.

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    Guidance Note on CSR Expenditure (My Notes)

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    This document provides guidance on accounting for corporate social responsibility (CSR) expenditures under the Companies Act of 2013. It outlines that companies meeting certain criteria must spend at least 2% of their average net profits on CSR activities. It also discusses how CSR expenditures should be recognized and measured depending on whether funds are contributed, spent via a trust/NGO, or spent directly by the company. Expenditures of a revenue nature are expensed, while asset-creating expenditures are recognized only if the company retains control and future benefits from the asset.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    101 views2 pages

    Guidance Note On CSR Expenditure (My Notes)

    Uploaded by

    maulesh bhatt
    This document provides guidance on accounting for corporate social responsibility (CSR) expenditures under the Companies Act of 2013. It outlines that companies meeting certain criteria must spend at least 2% of their average net profits on CSR activities. It also discusses how CSR expenditures should be recognized and measured depending on whether funds are contributed, spent via a trust/NGO, or spent directly by the company. Expenditures of a revenue nature are expensed, while asset-creating expenditures are recognized only if the company retains control and future benefits from the asset.

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    © All Rights Reserved
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    of 2

    GYAAN

    PROFESSIONAL ACADEMY

    Guidance Note on Accounting for Expenditure on Corporate Social


    Responsibility Activities
    Legislative Provisions for CSR

    Section 135 of the Companies Act, 2013 (the Act), requires the Board of Directors of every
    company having a net worth of Rupees 500 crore or more, or turnover of Rupees 1,000 crore
    or more or a net profit of Rupees 5 crore or more, during any financial year, to ensure that the
    company spends in every financial year atleast 2% of the average net profits of the company
    made during the three immediately preceding financial years on Corporate Social Responsibility
    (CSR) in pursuance of its policy in this regard. The Act requires such companies to constitute a
    Corporate Social Responsibility Committee which shall formulate and recommend to the Board
    a Corporate Social Responsibility Policy which shall indicate the CSR activities to be undertaken
    by the company as specified in Schedule VII to the Act.

    Whether Provision for Unspent Amount required to be created?

    Section 135 (5) of the Companies Act, 2013, requires that the Board of every eligible
    company, “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 Corporate Social Responsibility Policy”. A proviso to
    this Section states that “if the company fails to spend such amount, the Board shall, in its
    report … specify the reasons for not spending the amount”.

    The above provisions of the Act clearly lay down that the expenditure on CSR activities is to be
    disclosed only in the Board’s Report in accordance with the Rules made thereunder. In view of
    this, no provision for the amount which is not spent, i.e., any shortfall in the amount that was
    expected to be spent as per the provisions of the Act on CSR activities and the amount actually
    spent at the end of a reporting period, may be made in the financial statements.

    However, if a company has already undertaken certain CSR activity for which a liability has
    been incurred by entering into a contractual obligation, then in accordance with the generally
    accepted principles of accounting, a provision for the amount representing the extent to which
    the CSR activity was completed during the year, needs to be recognised in the financial
    statements.

    Other Considerations in Recognition and Measurement

    A company may decide to undertake its CSR activities approved by the CSR Committee with a
    view to discharge its CSR obligation as arising under section 135 of the Act in the following
    three ways:
    (a) making a contribution to the funds as specified in Schedule VII to the Act; or

    (b) through a registered trust or a registered society or a company established under section
    8 of the Act (or section 25 of the Companies Act, 1956) by the company, either singly or
    along with its holding or subsidiary or associate company or along with any other
    company or holding or subsidiary or associate company of such other company, or
    otherwise ; or

    Guidance Note on Expenditure on CSR Activities 1


    GYAAN PROFESSIONAL ACADEMY

    (c)
    in any other way in accordance with the Companies (Corporate Social Responsibility
    Policy) Rules, 2014, e.g. on its own

    In case a contribution is made to a fund specified in Schedule VII to the Act, the same would
    be treated as an expense for the year and charged to the statement of profit and loss. In case the
    amount is spent in the manner as specified in paragraph10 (b) above the same will also be
    treated as expense for the year by charging off to the statement of profit and loss. The
    accounting for expenditure incurred by the company otherwise e.g. on its own would be
    accounted for in accordance with the principles of accounting as explained hereinafter.

    CSR activities carried out by the company covered under paragraph 10 (c)

    In cases, where an expenditure of revenue nature is incurred on any of the activities mentioned
    in Schedule VII to the Act by the company on its own, the same should be charged as an
    expense to the statement of profit and loss. In case the expenditure incurred by the company
    is of such nature which may give rise to an ‘asset’, a question may arise as to whether such an
    ‘asset’ should be recognised by the company in its balance sheet. In this context, it would be
    relevant to note the definition of the term ‘asset’ as per the Framework for Preparation and
    Presentation of Financial Statements issued by the Institute of Chartered Accountants of India.
    As per the Framework, an ‘asset’ is a “resource controlled by an enterprise as a result of past
    events from which future economic benefits are expected to flow to the enterprise”. Hence, in
    cases where the control of the ‘asset’ is transferred by the company, e.g., a school building is
    transferred to a Gram Panchayat for running and maintaining the school, it should not be
    recognised as ‘asset’ in its books and such expenditure would need to be charged to the
    statement of profit and loss as and when incurred. In other cases, where the company retains
    the control of the ‘asset’ then it would need to be examined whether any future economic
    benefits accrue to the company.

    In some cases, a company may supply goods manufactured by it or render services as CSR
    activities. In such cases, the expenditure incurred should be recognised when the control on the
    goods manufactured by it is transferred or the allowable services are rendered by the
    employees. The goods manufactured by the company should be valued in accordance with the
    principles prescribed in Accounting Standard (AS) 2, Valuation of Inventories. The services
    rendered should be measured at cost. Taxes (like excise duty, service tax, VAT or other
    applicable taxes) on the goods and services so contributed will also form part of the CSR
    expenditure.

    Where a company receives a grant from others for carrying out CSR activities, the CSR
    expenditure should be measured net of the grant.

    2 Guidance Note on Expenditure on CSR Activities

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