A charity that holds land and buildings which are used by a school for children with behavioural and other difficulties is itself a charity. The charity receives donations which it uses to maintain and upgrade the schools’ facilities, but otherwise has very little activity.
In light of the recent Charities Act and the proposed changes to the public benefit rules, the trustees were concerned that the accounts did not fully reflect the charity’s contribution to the school as no value was placed upon its donation of the use of the facilities. The school included an amount as a donation in kind and a matching expense within its accounts, based on a valuation done by a chartered surveyor, but it was unclear how this should be recognised within the charity’s accounts.
Our team researched this, going through the SORP in detail, raising the point with the Charity Commission helpline and reviewing UK GAAP. Good, clear guidance was available on the recognition of donations in kind received, however merely doing the reverse of this and so establish an income stream to match the donation given did not appear to be an option. As result of this we established that there was no accepted accounting treatment to allow the recognition of this activity within the charity’s financial statements. We suggested that the accounts could provide adequate disclosure within the notes to the financial statements, outlining the treatment and value assigned by the school and drawing attention to this aspect of the charity’s activities.
The trustees agreed to this and the disclosure was made in the charity’s financial statements. We have agreed with them to continue to monitor any developments in this area, both in terms of accounting treatment and public benefits and to try to ascertain whether any best practice emerges in this area.
If you would like to speak with our Charity & Not for Profit Group about a treatment of donations, please contact us.