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When 6 accountants can't agree about Gifts in Kind

Can an expense side of a GIK be apportioned to a fund other than that of it's notional income

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Hi

6 accountants in a room can't agree on this so I thought I'd open up to 20000.

- Let's say someone lets a charity use a building rent free for 12 months with a market value of 50k

- A gift in kind is created crediting income with 50k (lets call it Fund X ) and a corresponding expense of 50k

- In that same year another donation is received for 50k which must be spent on premises costs (so a restricted fund - let's call it Fund Y)

- no other costs are incurred and no other premises are required.

So at the end of the year the total funds are 50k  (50 gift in kind + 50 cash  - 50 GIK expense)

What are the individual fund balances at the end of the year?

1)  Fund X £0,  Fund Y 50k (the fund has been spent against the original income that created the expense)

2 ) Fund X 25K,   Fund Y 25K (evenly allocate premises costs across the funds that allow it)

3) Fund X 50K,  Fund Y 0K  (we can choose which fund to allocate the expense to)

or 4) any combination of the above depending on how you choose to allocate the 50k expense to the funds as they all can be spent on premises costs.

 

discuss....

 

 

 

 

 

 

 

Replies (8)

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By WhichTyler
07th Feb 2017 21:29

1. The gik isnt a restricted fund, it's just recognising the economic value to the charity of the service it is receiving. As sorp para 6.16 says, the donated service is consumed immediately, so there a no residual fund.

You could ask the landlord to charge you rent and then make an equivalent unrestricted donation if you want to make best use of the incoming cash...

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By paulwakefield1
08th Feb 2017 09:02

Interesting question. Can a notional cost arising from an unrestricted benefit be used against a restricted fund? Perhaps a more controversial phrasing would be "Can a notional cost be used to convert a restricted fund to an unrestricted fund?".

I suspect it probably can. Whether it should is a different question and I would certainly want to have a better understanding of the restricted fund donor's intentions and the precise restrictions.

I'll be interested to see what other views there are.

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By hairyfingers
08th Feb 2017 11:32

Yes, Paul that is exactly the debate we have been having.

and I like your re phrasing "Can a notional cost be used to convert a restricted fund to an unrestricted fund?"

because that is exactly what will happen if the cost can be attributed to the restricted fund.

I can imagine a funders response if they were told all the fund was spent on premises but the charity didn't actually spend any money!

Picking up on WhichTylers comment. "The gik isn't a restricted fund" - this again is a sticking point we have come to. The SORP doesn't say it isn't restricted it just says it is consumed immediately. So, if it is that fund which is consumed, it cannot therefore be applied to any other fund. So Fund Y remains...

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Replying to hairyfingers:
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By paulwakefield1
08th Feb 2017 12:44

I would agree the GiK is probably not restricted. Although it might be argued that it is restricted but the fund is immediately utilised by the expense.

All that 6.16 and 6.17 are saying is that the income and cost are recognised at the same time and at the same amounts i.e. as the rental cost would be incurred. I believe the SORP is silent as to which fund the cost can be expensed against and, if the GiK is indeed unrestricted then there is no absolute need for the cost to be charged to the same unrestricted general fund.

Nevertheless I would feel uncomfortable in charging the expense to a fund other than the general fund.

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By WhichTyler
08th Feb 2017 12:56

Is this a hypothetical question or a real issue?

It just made me wonder why you would ask a donor for money towards premises costs that you aren't incurring...

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Replying to WhichTyler:
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By paulwakefield1
08th Feb 2017 13:08

Well I suppose it could be rent free but still have responsibility for R&M, utilities, etc.

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By hairyfingers
08th Feb 2017 21:07

Hi

The scenario I've given is hypothetical to try and simplify the principle.

But the situation is real. It is a charity that is receiving premises and office materials in kind but they also have multiple big lottery grants where they also have an allowance for premises, office etc. They have received the in kinds premises after receiving the big lottery monies.

they are allocating the notional premises etc to the big lottery grant to "use it up" but as Paul pointed out this is in effect transferring a restricted grant to unrestricted....

...But if the notional income is not restricted then they could choose not to spend that notional income on the notional expense and therefore spend the notional expense on another restricted fund.

a quandary...

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Replying to hairyfingers:
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By WhichTyler
09th Feb 2017 09:57

some grants allow a %age uplift to project specific costs to cover general estate, admin & management, overhead etc. if this is one of those I'd be happy taking that to the general fund
But in general
1. check the grant agreement to make sure you understand the terms about reallocating between budget lines
2. Go back to the funder for permission to reallocate to other project costs if necessary
3. Talk it through with your auditor so you don't give them a nasty surprise at year end

don't just try to create non existent expenditure because it may or may not be technically allowed

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