This article outlines the accounting treatment, journal entries, and disclosure requirements for Corporate Social Responsibility (CSR) obligations in mid-segment private companies, as mandated under Section 135 of the Companies Act, 2013, in accordance with the ICAI Guidance Note on CSR Accounting and Ind AS 37.
Overview of CSR Compliance for Mid-Segment Private Companies
Applicability Criteria:
CSR provisions apply to private companies meeting any of the following thresholds in the preceding financial year:
- Net worth: ₹500 crore or more.
- Turnover: ₹1,000 crore or more.
- Net profit: ₹5 crore or more.
Such companies must allocate 2% of the average net profit of the last three financial years toward CSR activities as per Schedule VII of the Act.
Accounting Treatment: CSR Obligations and Unspent Amounts
Case Example:
For FY 2023-24, consider ABC Pvt. Ltd., a mid-segment private company:
- CSR Obligation: ₹50 lakhs.
- Actual CSR Expenditure: ₹35 lakhs.
- Unspent CSR Amount: ₹15 lakhs (ongoing projects).
The unspent amount must be transferred to a dedicated bank account (Unspent CSR Account) and utilized within 3 financial years.
Accounting Entries for CSR Obligations
| Date | Particulars | Debit (₹) | Credit (₹) | Explanation |
|---|---|---|---|---|
| 1. Obligation Recognition | ||||
| 01/04/2023 | Profit and Loss A/c (CSR Expense) | 50,00,000 | CSR Obligation A/c | CSR obligation for FY 2023-24 recognized in line with Section 135 of the Companies Act. |
| 2. Transfer to Unspent CSR Account | ||||
| 31/03/2024 | CSR Obligation A/c | 15,00,000 | Bank A/c | ₹15 lakhs transferred to a designated Unspent CSR Account for ongoing projects. |
| 3. Expenditure Incurred | ||||
| Various Dates | CSR Expense A/c | 35,00,000 | Bank A/c | ₹35 lakhs spent on approved CSR activities. |
| 4. Closing Liability for Ongoing Projects | ||||
| 31/03/2024 | Unspent CSR A/c | 15,00,000 | Current Liabilities | Unspent CSR amount disclosed under liabilities for ongoing projects to be utilized in future years. |
Disclosure Requirements for CSR Compliance
Mid-segment private companies must ensure transparent reporting in their financial statements. The following table summarizes the disclosure requirements as per the ICAI Guidance Note and Schedule III of the Companies Act, 2013:
| Particulars | Amount (₹ Lakhs) | Disclosure Treatment |
|---|---|---|
| CSR Obligation for FY 2023-24 | 50 | Mentioned under Notes to Accounts with details of activities and timelines. |
| Actual CSR Expenditure | 35 | Classified as Other Expenses in the Profit and Loss Account. |
| Unspent CSR Amount (Ongoing Projects) | 15 | Shown under Other Current Liabilities in the Balance Sheet. |
| Bank Balance in Unspent CSR Account | 15 | Separate disclosure under Cash and Bank Balances. |
| Nature of CSR Activities | - | Details of projects, sector-wise allocation, and progress must be disclosed. |
Illustrative Notes to Accounts
1. Corporate Social Responsibility (CSR):
CSR Obligation for FY 2023-24:
- Total obligation for FY 2023-24: ₹50 lakhs.
- CSR expenditure incurred: ₹35 lakhs (details below).
- Balance unspent amount (₹15 lakhs) transferred to Unspent CSR Account for ongoing projects, to be utilized by March 2027.
Details of CSR Activities Undertaken:
- Healthcare Initiatives: ₹20 lakhs.
- Education Programs: ₹15 lakhs.
2. Movement in Unspent CSR Account:
| Particulars | ₹ Lakhs |
|---|---|
| Opening Balance | 0 |
| Amount Transferred in FY 2023-24 | 15 |
| Amount Utilized in FY 2023-24 | 0 |
| Closing Balance as of 31/03/2024 | 15 |
Key Compliance Considerations for Mid-Segment Companies
Timely Transfer:
- Transfer unspent amounts for ongoing projects to the Unspent CSR Account within 30 days of the financial year-end.
Utilization Deadline:
- Ensure utilization of unspent funds within 3 financial years. In case of failure, transfer the remaining amount to a Schedule VII Fund within 30 days after the third financial year.
ICAI Guidance Note Compliance:
- Recognize CSR obligations as expenses when incurred.
- Do not treat unspent amounts as provisions unless a legal or constructive obligation exists.
Adequate Disclosures:
- Clearly disclose the nature of CSR projects, sectoral allocations, and timelines.
- Disclose reasons for shortfalls, if any, along with plans for utilization.
Conclusion
For mid-segment private companies, compliance with CSR obligations requires precise accounting treatment, timely actions, and transparent disclosures. By adhering to the ICAI Guidance Note and aligning with the Companies Act, 2013, companies can ensure:
- No adverse impact on financial reporting.
- Regulatory compliance without penalties or defaults.
- Enhanced stakeholder confidence through clear and accurate reporting.
Recommendation: Companies should maintain a robust monitoring system for CSR projects and ensure alignment with statutory timelines to avoid any financial or reputational risks.
