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Whether CSR expense is a Capital expenditure or a revenue expenditure?

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posted Apr 13, 2016 by Shantanu Arora

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Treatment in books of accounts- In case the expenditure incurred by the company is of such nature which may give rise to an ‘asset’, it should be recognised by the company in its balance sheet, provided the control over the asset is with the Company and future economic benefits are expected to flow to the company. Where any CSR asset is recognized in its balance sheet, the same may be classified under natural head (e.g. Building, Plant & Machinery etc.) with specific subhead of ‘CSR Asset’ if the expenditure
satisfies the definition of ‘asset’. For example, a building used for CSR activities where the beneficial interest has not been relinquished for Lifetime by a company and from which any economic benefits flow to a company, may be recognised as ‘CSR Building’ for the purpose of reflecting the same in the balance sheet. If an amount spent on an asset has been shown as CSR spend, then the depreciation on such asset cannot be claimed as CSR spend again. Once cost of the asset is included for CSR spend, then the depreciation on such asset will not be included for CSR spend even if the asset is capitalized in the books of accounts and depreciation charged thereon. Where an expenditure does not give rise to an ‘asset’ as explained above, the same may be treated as expenditure of revenue nature and dealt with in accordance with FAQ 4 below.

Disclosure of CSR spend- Item 5 (a) of the General Instructions for Preparation of Statement of Profit and Loss under Schedule III to the Companies Act, 2013, requires that in case of companies covered under Section 135, the amount of expenditure incurred on
‘Corporate Social Responsibility Activities’ shall be disclosed by way of a note to the statement of profit and loss. The note should also disclose the details with regard to the expenditure incurred in construction of a capital asset under a CSR project.

answer Jun 22 by Prachi
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