Fixed Assets Accounting Policies

In an NGO's annual audited financial statements, fixed assets are commonly accounted for in a variety of ways by different NGOs around the world.

This page describes the three main methods used, and gives an example of the wording for the accounting policy for the financial statements. it also gives guidance on which policy may be most appropriate for your circumstances.


WARNING! This page contains jargon and is aimed at qualified accountants and auditors.

Method 1 - Capitalise assets

  • Fixed assets are shown on the balance sheet at historical cost less depreciation.  Depreciation is calculated to write off the cost less residual value of each asset over its expected useful life.

Result: Fixed assets appear on the top of the balance sheet.  The Income and Expenditure Statement shows depreciation, (not capital expenditure).

This method is required by International Financial Reporting Standards (IFRS).

Method 2 - Expense assets

  • Fixed assets acquired during the year are shown on the Income and Expenditure Statement as capital expenditure.

Result: Capital expenditure appears on the Income and Expenditure Statement.  Fixed assets do not appear on the balance sheet. 

This method is often required by donors.

Method 3a - Capital grants fund (Both 1 and 2)

  • Fixed assets funded by grants are expensed from restricted grant funds in the year of purchase  and transferred to the capital grants fund.  Fixed assets are shown on the balance sheet and depreciated through the capital grants fund at rates calculated to write off the cost less residual value of each asset over its expected useful life.

Result: Fixed assets appear on the top of the balance sheet. Grant funds are charged with capital expenditure in the year of purchase.  The bottom of the balance sheet shows Capital Grants fund, equal to the net book value of assets funded by grants.

See a fuller explanation of a capital grants fund.

 

Method 3b - Capital fund (Both 1 and 2)

  • All fixed assets are expensed from revenue funds in the year of purchase and transferred to the capital fund. Fixed assets are shown on the balance sheet and depreciated through the capital grants fund at rates calculated to write off the cost less residual value of each asset over its expected useful life.

Result: Fixed assets appear on the top of the balance sheet. Revenue funds (restricted grant funds and general funds) are charged with capital expenditure in the year of purchase. The bottom of the balance sheet shows Capital Fund, equal to the net book value of fixed assets shown on the top of the balance sheet.

 

Which method is best for us?

To decide which method is best for you, consider:

  1. Which accounting standards apply to you?
  2. What will the users of your financial statements best understand?
  3. Do your donors require any particular method?
  4. What have you used in the past?
  5. What is most commonly used by similar NGOs in your country?

Golden rule 1 - whichever method you use, clearly state your accounting policy.

Golden rule 2 - whichever method you use, always keep an up to date fixed assets register.

See an example of a fixed assets register

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