Corporate Social Responsibility Reporting – CA Final FR Study Material is designed strictly as per the latest syllabus and exam pattern.
Corporate Social Responsibility Reporting – CA Final FR Study Material
Question 1.
Discuss whether any unspent amount of CSR expenditure is to be provided for?
Answer:
Section 135(5) of the Companies Act, 2013, requires that the Board of every eligible company, “shall ensure that the company spends, in every financial year, at least 296 of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy”. A proviso to this Section states that “if the company fails to spend such amount, the Board shall, in its report specify the reasons for not spending the amount”.
Further, Rule 8(1) of the Companies (Corporate Social Responsibility Policy) Rules, 2014, prescribes that the Board Report of a company under these Rules shall include an Annual Report on CSR, in the prescribed format.
The above provisions of the Act/Rules clearly lay down that the expenditure on CSR activities is to be disclosed only in the Board’s Report in accordance with the Rules made thereunder.
In view of this, no provision for the amount which is not spent, (ie., any shortfall in the amount that was expected to be spent as per the provisions of the Act on CSR activities and the amount actually spent at the end of a reporting period) may be made in the financial statements.
The proviso to section 135(5) of the Act, makes it clear that if the specified amount is not spent by the company during the year, the Directors’ Report should disclose the reasons for not spending the amount.
However, if a company has already undertaken certain CSR activity for which a liability has been incurred by entering into a contractual obligation, then in accordance with the generally accepted principles of accounting, a provision for the amount representing the extent to which the CSR activity was completed during the year, needs to be recognised in the financial statements.
Question 2.
State whether any unspent amount of CSR expenditure (any shortfall in the amount that was expected to be spent as per the provisions of the Companies Act on CSR activities) at the reporting date shall be provided for?
Also state in case the excess amount has been spent (i.e. more than what is required as per the provisions of the Companies Act on CSR activities), can it be carry forward to set-off against future CSR expenditure.
Answer:
(i) Treatment of any unspent amount of CSR expenditure
Since the expenditure on CSR activities is to be disclosed only in the Board’s Report, no provision for the amount which is not spent, (ie., any shortfall in the amount that was expected to be spent as per the provisions of the Act on CSR activities and the amount actually spent at the end of a reporting period) may be made in the financial statements.
The Act requires that if the specified amount is not spent by the company during the year, the Directors’ Report should disclose the reasons for not spending the amount.
However, if a company has already undertaken certain CSR activity for which a liability has been incurred by entering into a contractual obligation, then in accordance with the generally accepted principles of accounting, a provision for the amount representing the extent to which the CSR activity was completed during the year, needs to be recognised in the financial statements.
(ii) Treatment of excess amount spent on CSR Activities
Since 296 of average net profits of immediately preceding three years is the minimum amount which is required to be spent under section 135(5) of the Act, the excess amount cannot be carried forward for set off against the CSR expenditure required to be spent in future.
Question 3.
(i) When an entity is required to form a CSR committee? &
(ii) ABC Ltd. is a company which has a net worth of INR 200 crores, it manufactures rubber parts for automobiles. The sales of the company are affected due to low demand of its products.
The previous year’s financials state: (INR in Crores)
| March 31, 20X4 (Current year) | March 31, 20X3 | March 31, 20X2 | March 31, 20X1 | |
| Net Profit | 3.00 | 8.50 | 4.00 | 3.00 |
| Sales (turnover) | 850 | 950 | 900 | 800 |
Does the Company have an obligation to form a CSR committee since the applicability criteria is not satisfied in the current financial year?
Answer:
(i) As per section 135 of the Companies Act, 2013
Every company having either
- net worth of ₹ 500 crore or more, or
- turnover of ₹ 1,000 crore or more or
- a net profit of ₹ 5 crore or more
during immediate preceding financial year shall constitute a Corporate Social Responsibility (CSR) Committee of the Board consisting of three or more directors (including at least one independent director).
(ii) A company which meets the net worth, turnover or net profits criteria in immediate preceding financial years, will need to constitute a CSR Committee and comply with provisions of section 135(2) to (5) read with the CSR Rules.
As per the criteria to constitute CSR committee-
- Net worth greater than or equal to INR 500 Crores: This criterion is not satisfied.
- Sales greater than or equal to INR 1000 Crores: This criterion is not satisfied.
- Net Profit greater than or equal to INR 5 Crores: This criterion is satisfied in financial year ended March 31, 20X3.
Hence, the Company will be required to form a CSR committee.
Question 4.
B Limited manufactures consumable goods for infants like bath soap, cream, powder, oil etc. As part of its CSR policy, it has decided that for every pack of these goods sold, ₹ 0.75 will go towards the “Swachh Bharat Foundation” which will qualify as a CSR spend as per Schedule VII. Consequently, at the year end, the company sold 40,000 such packs and a total of ₹ 30,000 was recognized as CSR expenditure. However, this amount was not paid to the Foundation at the end of the financial year. Will the amount of ₹ 30,000 qualify to be CSR expenditure?
Answer:
B Ltd. has earmarked 75 paise per pack to spend as CSR activities. However, only by earmarking the amount from such sale for CSR expenditure, the company cannot show it as CSR expenditure. To qualify the amount as CSR expenditure, it has to be spent. Hence, ₹ 30,000 will not be automatically considered as CSR expenditure till the time it is spent on CSR activities i.e. it is deposited to ‘Swachh Bharat Foundation’.