Clubtreasurer Clinic
If a grant or donation paid towards an asset, keep the asset in your accounts at its full cost and release the donation to income over the asset’s life. Do not reduce the asset’s value by the amount donated.
This is the capital grant treatment described under Type 3 in our guide to accounting for grants. That guide explains the principle in a paragraph; this post works through it with figures, so you can see exactly what to enter in Clubtreasurer and what your reports will show.
Keeping the asset at full cost means your fixed asset register agrees with the supplier’s invoice, and your profit and loss account shows the donation income alongside the depreciation it is funding. Netting the donation off the asset hides both.
As with all grant and donation accounting, confirm the treatment with your accountant, auditor or independent examiner first. What follows shows the mechanics once that decision has been made.
The scenario
Your club buys a ride-on mower for £12,000 on 1st March. Three donors gave towards it and you paid the balance from club funds. Your financial year runs from 1st January to 31st December, and the mower is depreciated on a straight-line basis over five years.
| Item | Amount |
|---|---|
| Asset cost | £12,000 |
| Donations received towards it | £9,000 (£5,000, £3,000 and £1,000) |
| Paid from the club’s own funds | £3,000 |
| Annual depreciation (£12,000 ÷ 5) | £2,400 |
| Annual donation release (£9,000 ÷ 5) | £1,800 |
For simplicity, the example charges a full year’s depreciation in each of the five years, starting with the year of purchase. If your register pro-rates the first and last years, the rule in Step 4 still applies.
Step 1: Set up the two things you need
The donations will sit on your balance sheet as a liability until you release them, so you need an account to hold that liability and a fund to track the money.
- Create a new account named “Deferred Donations A/c” and set Type = Creditor. (See bank and cash accounts for how to add one.)
- Create a new fund named “Mower Donations”. Use one fund per appeal or asset, so you can report back to donors on exactly what their money paid for. (See our guide to funds.)
Step 2: Bring each donation into the bank
Record each donation as an account transfer, not a receipt. A transfer moves money between two accounts without creating anything in your profit and loss account, whereas a receipt always creates income.
| Date | Amount | From | To |
|---|---|---|---|
| 10th January | £5,000 | Deferred Donations A/c | Bank Account |
| 3rd February | £3,000 | Deferred Donations A/c | Bank Account |
| 20th February | £1,000 | Deferred Donations A/c | Bank Account |
On each transfer, tick Show Funds and select Mower Donations on both sides. If you tag only one side, the fund balance will not reconcile.
Your bank balance is now £9,000 higher and the Deferred Donations account carries a £9,000 liability. Nothing has touched the P&L.
At 28th February the reports show:
| Report | Result |
|---|---|
| Balance Sheet | £0 net: Bank Account £9,000 less Deferred Donations liability (£9,000) |
| Profit and Loss | £0 surplus: £0 income less £0 expenditure |
You are holding £9,000 that has been given for a purpose, and you have earned none of it yet.
Step 3: Pay for the asset and capitalise it at full cost
On 1st March, create a new Asset record with £0 opening balance and depreciated straight-line over five years. You should select the “Asset Fund’.
Create the Initial Capital Purchase to record the £12,000 payment from your bank account which capitalises the mower costs.
- You should use your General Fund here, not the Mower Fund which is related to the donation elements.
- You may need to create a “CAPEX” Cost Code if you don’t have one already – see Work in Progress Assets blog for a worked example.
- It is important to use the full purchase cost here £12000, not the reduced cost by the donations, so that the register agrees with the supplier’s invoice, and the donations are dealt with separately through the Deferred Donations account & fund.
Your bank balance is now £3,000 lower than it was before the donations arrived: the £9,000 donated, less the £12,000 paid out. That £3,000 is the club’s own contribution.
Step 4: Release the donations each year
At the end of each financial year, create a receipt transaction:
- Date: 31st December
- Amount: £1,800
- Account: Deferred Donations A/c
- Cost Code: a donation income code, such as “Donation Income”
- Fund: Mower Donations
Note the account: the receipt goes against the Deferred Donations account, not the bank. The cash arrived in January and February. What this entry does is recognise £1,800 as income in your P&L and reduce the liability by the same £1,800.
How to work out the amount. Release the same share of each depreciation charge as the donations bore of the asset’s cost:
Annual release = depreciation charge × (donations ÷ asset cost) = £2,400 × (£9,000 ÷ £12,000) = £1,800
If donations paid for the whole asset, the release equals the whole depreciation charge. If your register charges a part-year in the first or last year, release the same proportion of that year’s charge, so the two always move together.
What the reports show
The P&L shows a £600 deficit in each of the five years, which is the club’s own £3,000 share of the mower spread over its life, instead of a £2,400 depreciation charge. At the end of year five the asset and the liability are both nil.
| Year end | Depreciation | Donation income released | Net effect on P&L | Asset net book value | Deferred Donations liability |
|---|---|---|---|---|---|
| Year 1 | £2,400 | £1,800 | (£600) | £9,600 | £7,200 |
| Year 2 | £2,400 | £1,800 | (£600) | £7,200 | £5,400 |
| Year 3 | £2,400 | £1,800 | (£600) | £4,800 | £3,600 |
| Year 4 | £2,400 | £1,800 | (£600) | £2,400 | £1,800 |
| Year 5 | £2,400 | £1,800 | (£600) | £0 | £0 |
| Total | £12,000 | £9,000 | (£3,000) |
The balance sheet always reconciles to the P&L. At the end of year 2, for example, the net change is the bank’s £3,000 reduction, plus the asset at £7,200, less the liability of £5,400, which comes to (£1,200): exactly the two years’ deficits of £600.
Tagging everything to the Mower Donations fund also gives you one report of the donations and releases for this asset, ready for any donor who asks.
Already bought the asset and released nothing?
If the asset has been depreciating for a year or two while the donations sat untouched on the balance sheet, you can catch up with a single receipt against the Deferred Donations account. The amount is the annual release multiplied by the number of depreciation charges already made. In our example, two years of depreciation without a release means a catch-up receipt of £3,600 (2 × £1,800), after which you carry on with £1,800 a year.
If the earlier years have already been signed off, talk to your accountant or auditor before posting it. Catching up in the current year will make this year’s income look higher than usual, and they may prefer it explained or presented differently.
Common mistakes to avoid
Reducing the asset’s cost by the donations. It looks tidier, but the register no longer agrees with the supplier’s invoice, and your P&L never shows the donation income or the true depreciation.
Releasing the whole donation at once. It inflates this year’s surplus and leaves later years carrying the full depreciation charge with nothing to offset it.
Releasing the full depreciation charge when the donations paid for only part of the asset. In our example that would release £2,400 instead of £1,800 and clear the liability early. Release only the donated share.
Posting the release receipt against the bank account. The cash already arrived with the transfer. Posting the release to the bank records the money twice. The release always goes against the Deferred Donations account.
Forgetting to tag the fund on both sides of each transfer. If you tag only one side, the fund balance will not reconcile.
Using this treatment for general donations. It applies to donations given for the asset. Money given to the club for its general purposes is simply income when you receive it.
A quick checklist
- Confirm the treatment with your accountant or auditor
- Create a Creditor account for the deferred donations and a fund for the appeal
- Bring each donation in by account transfer, with the fund set on both sides
- Capitalise the asset in the fixed asset register at its full cost
- Each year, post a receipt against the Deferred Donations account for the donated share of that year’s depreciation
- Check the balance sheet and P&L after the first release to confirm the liability is falling in step with the asset
- Keep the donation records and any conditions attached to them with the transaction
In summary
The donation and the asset are two separate things, so record them separately. The asset stays at what you paid, the donation waits on the balance sheet, and each year a slice of it moves into income at the same rate as the depreciation it is funding.
One last point. If the donation or grant carries a condition, such as an obligation to repay if you sell the asset within a set period, ask your accountant how it should be released and disclosed. That affects the release schedule, and the mechanics above will still apply once it is settled.