Royalty-free financial assistance: accounting entries

Gratuitous financial assistance - a common business transaction, which entails the transfer of property to a legal entity from other entities. Most often, philanthropists donate assets in the form of cash. But there are other types of gratuitous financing by third parties.

Legislation Reflection

Depending on the branch of legal regulation that controls the process of free transfer of assets, the meaning of the definition of “financial assistance” changes. The Civil Code considers it as a transfer of property by outsiders or founders as a gift.

Gratuitous financial assistance in accounting is understood as the result of charity or earmarked funding. The Tax Code provides for a number of exceptions and additional comments on the taxation of donated property.

Varieties of gratuitous assistance

Cash is the main way to provide financial support to an enterprise. They can be transferred from other legal entities and individuals, the state or founders for specific purposes.

Gratuitous financial assistance can be provided not only in cash, but also through the transfer of property in the form of fixed assets or intangible assets. For example, the following may be transferred to the ownership of an enterprise:

• property rights;
• work or services without payment;
• intellectual property;
• securities.

Timely financial assistance at no cost can lead the company out of a difficult situation and even avoid bankruptcy.

Property Support Accounting

An enterprise that has performed the act of donating property to another legal entity must necessarily reflect the transaction in the accounting data. According to the instructions of the RF Ministry of Finance, charity expenses are included in the category of other expenses.

To collect information about the donations listed, use account 91. Its structure is active-passive. The provision of gratuitous financial assistance is accompanied by correspondence with a debitable 91 account.

Postings by a philanthropist

Process gratuitous transfer of property (including money) must be documented by both the receiving and the giving party. Inaccuracies in accounting can lead to violations of tax laws, which entails prosecution.

To account for the transfer of property use checking account 76, which is debited with accounts containing information on donated assets. After that, the amounts of expenses are written off to the debit of account 91, and also, if necessary, reflect the amount of tax liabilities.

Gratuitous tax accounting

The provision of financial support to other legal entities is regulated not only by accounting standards, but also by the instructions of the Tax Code. The main tax payments that are levied on property assistance are VAT and income tax.

The legislation in force in 2016 requires companies that provide free financial assistance to allocate funds from net profit. According to the Tax Code, expenses related to charity and earmarked contributions are not included in the calculation of the tax base.

VAT

In 2016, enterprises can also count on benefits when paying VAT. The transfer of property rights, services, works or goods free of charge is not subject to VAT. It should be borne in mind that excisable products are not included in the list.

To obtain rights to the benefit, it is necessary to comply with the requirements of Law No. 135 FZ, which details the list of charitable activities that fall under the exemption from VAT. If an enterprise is engaged in financial support of a legal entity using operations, both VAT and non-taxable, they should be separately accounted for.

Documents for donating property

The provision of gratuitous financial assistance should be recorded in the documents. The exception is cases of transferring funds to non-profit organizations that do not pursue the goal of using the amounts for entrepreneurial activity. In other cases, the company must have the following documents in hand:

• an agreement with the recipient of financial assistance;
• copies of accounting registers on acceptance by beneficiaries of amounts for accounting;
• confirmation of the intended use of the funds received.

The list contains the main papers that are necessary for the execution of an act of charity. In some cases, additional documents may be required.

Accounting for financial assistance

According to the instructions for using the standard chart of accounts, passive account 98 (subaccount 2) is used to reflect information on the amount of gratuitous income. In this case, the accounts of the property being transferred are debited.

As the allocated funds are used, the amounts are recognized as non-operating income, partially debited to account 91.1. This is necessary according to the PBU: assets received free of charge as a result of charity are considered non-operating income and are reflected on account 91. A decrease in the amount of assistance received occurs when:

• vacation in the production of MPZ;
• depreciation charges;
• repayment of accounts payable;
• other operations due to targeted financing.

Accounting data should fully reflect the sources of non-operating income and the conditions for their use.

Tax accounting for gratuitously received amounts

Received as a gift the finances of an enterprise are taxed in a special manner. VAT is mandatory only in cases where:

• the organization uses the received goods for the purpose of further sale;
• donated products - excisable;
• assistance was provided in the form of goods, services or works, as well as fixed assets and intangible assets objects, which will then be transferred to third parties.

Amounts donated, as a rule, are included only in the calculation of the income tax of the beneficiary, and VAT on money is not paid. The recipient company is required to take it into account when calculating income tax if at least one of the conditions is violated:

• its initial capital consists of 50% or more of the contribution of the benefactor;
• the authorized capital of the assistance organization consists of 50% or more of the contribution of the beneficiary.

Thus, the calculation of income tax does not include only financial assistance from the founder. If the funds were received from third-party legal entities or individuals, the beneficiary must include the amount in the calculation of income tax.

In cases where an individual acts as a party accepting assistance, it is necessary to pay personal income tax.

Grant Financing Postings

Consider the typical operations carried out by an accountant of an enterprise when receiving financial assistance.

After using financial assistance, it is necessary to reflect them in the item of non-operating income.

Founder Contributions Accounting

The finances of the enterprise are mainly generated from the funds of the authorized capital and subsequent investments of the founders. The law does not limit the frequency of contributions and their size. In addition, if the authorized capital of the recipient of financial assistance consists of 50% or more of the funds of the sender and vice versa, then the amount is not taken into account when calculating income tax.

In accounting reflect the assistance of the posting founder:

1. Dt 51 Kt 98.2 - for the amount received from the depositor free of charge.
2. Dt 98.2 Kt 91.1 - the amount of financial assistance is included in other income.
3. Dt 68 Kt 99 - reflects the tax liability from the amount of assistance (carried out in cases where the conditions of Article 251 of the Tax Code are violated).

Thus, only 2–3 account assignments describe free financial assistance. Postings in 1C are identical to those that were described for accounting without using the program.