Depreciation Treatment on assets received in kind for specific purpose (Corpus donation)

[PRIYAM KHAMBHATA]

Respected Sir

Whether depreciation on assets received in kind for specific purpose would be adjusted against the respective Donation Fund - corpus fund, instead of being charged to the Income & Expenditure Account,

Please guide me, what would be corrected for accounting standards.

Thanking

[Sanjeev Agarwal]

Accounting conclusion

For an asset received in kind as a corpus/specific-purpose donation, the preferable accounting treatment is to recognise depreciation as an expense in the Income & Expenditure Account, rather than directly reducing the Corpus/Donation Fund.

The accounting logic is:

• The asset is recognised as a fixed asset at its appropriate value.

• Depreciation represents systematic allocation of the asset's depreciable amount over its useful life.

• Accordingly, depreciation should be charged to the Income & Expenditure Account, with corresponding accumulated depreciation reducing the carrying amount of the asset.

• The fact that the asset was originally received against a specific/corpus donation does not, by itself, justify debiting depreciation directly to that fund.

Fund accounting

The Corpus/Specific Purpose Fund may continue to be shown separately, subject to the donor's terms and the entity's accounting policy. A separate fund adjustment may be considered only where the governing document/donor restriction and the applicable accounting framework specifically support such presentation.

Importantly, "specific-purpose donation" and "corpus donation" should not automatically be treated as synonymous. Under the Income-tax Act, 2025, a corpus donation requires a specific direction from the donor that it form part of the corpus and compliance with the prescribed investment/deposit condition.

Tax distinction

This should also be separated from tax treatment. The Income-tax Act, 2025 specifically restricts depreciation as an application where acquisition of the asset has already been claimed as application of income.

That tax rule does not mean that depreciation should be omitted from the books or directly charged to the Corpus Fund.

Recommended accounting:

Depreciation Income & Expenditure Account

Accumulated depreciation reduction from asset carrying value

Corpus/Specific Fund retained separately, subject to its terms.

Conclusion: Strong position, subject to the exact donor deed, applicable accounting framework and the entity's established fund-accounting policy.

AI Summary

Depreciation on donated assets should be charged to income and expenditure, not automatically adjusted against corpus funds.
Depreciation on an asset received in kind through a corpus or specific-purpose donation should ordinarily be charged to the Income & Expenditure Account, with accumulated depreciation reducing the asset's carrying value. The corpus or specific-purpose fund should remain separately presented according to donor terms and accounting policy. Direct adjustment of depreciation against that fund is appropriate only where donor restrictions, governing terms and the applicable accounting framework specifically permit it. Tax restrictions on depreciation as application of income remain distinct from book accounting treatment.